October started on a bearish note amid uncertainty in the neighbouring country. For the second time this year, the U.S. government averted crisis with a last-minute decision, as President Joe Biden signed a 45-day funding bill to prevent the government shutdown. These tensions will keep the TSX bearish in the short term.
TSX reflects macroeconomic weakness
Moreover, Bank of Canada’s interest rate announcement towards the end of October could keep markets slow. Investors expect the bank to keep the interest rate unchanged this year and cut it next year.
If the central bank does otherwise, the risks of a market downturn could increase. The early signs of a recession are visible. July’s real gross domestic product (GDP) growth was 0%. A similar growth is expected in August followed by a contraction in September. A recession occurs when GDP contracts for three consecutive quarters. While things are not yet that bad, they are not good either. Now is the time to prepare your portfolio for a recession.
Three TSX stocks to buy in October 2023
In an uncertain economy, investors switch to safe-haven investments where their money doesn’t lose value. Here are three such stocks in which you can invest $5,000. They can give you market-beating returns when conditions deteriorate.
Barrick Gold
Gold is a conventional investment to hedge against a weak economy. It doesn’t provide growth in a strong economy. But looking at the market conditions, now is a good time to invest $2,000 in Barrick Gold (TSX: ABX).
Barrick Gold is one of the largest gold mining companies in the world. While the stock gives you capital appreciation when the gold price rises, it also gives you a special dividend when the yellow metal price crosses a certain threshold. What causes this fluctuation in the gold price?
A paper currency is as strong as the government and economy. When investor confidence reduces in paper currency, they rush to buy gold, which still has a carrying value. This rush to invest in gold boosts gold prices and sends Barrick Gold stock up 70-80% in a few months. The deeper the recession, the longer the gold price rally.
You can get an early start in this gold rush and buy Barrick Gold stock, as it falls below its March 2020 low of $21.69. Those who brought the stock in the March 2020 dip saw a 75% rally in less than 60 days. Now is an opportune time to leverage the characteristics of gold and preserve your portfolio from a recession.
BCE stock
The high interest rate environment has been weighing down companies with significant debt on their balance sheet. Higher interest expenses are eating company profits. But that is not the case with Dividend Aristocrats like BCE (TSX: BCE). The company has a higher debt than equity (160%), but the debt maturities are scattered over the long term. Moreover, the company has been perfecting its capital model over the years, allocating capital for expansion and maintenance, dividends, and buybacks.
In the last few months, there was insider buying of BCE shares worth $500 million. That hints that company executives are making the most of falling stock prices to accumulate this income stock that yields 7.6%. When the overall market is in red, a +7% dividend return is nirvana.
While the company could pause its dividend compound annual growth rate (CAGR) of 5% in difficult circumstances, it has enough liquidity to keep the operations profitable while maintaining the $3.87 dividend per share.
Enbridge
Enbridge (TSX: ENB) is another stock most likely to enjoy a minimum operating cash flow as oil and gas flow through its pipelines. It can collect toll money and keep the cash flow moving. While investors are confident about the business cash flow, they are discounting the stock for the acquisition of Dominion Energy’s three gas utility operations — EOG, Questar, and PSNC. Analysts believe Enbridge is paying a premium for utilities that have minimum growth.
Even if Enbridge is paying a premium, the market discounting has created an opportunity to accumulate more stocks at a cheaper price and lock in an 8% dividend yield for the long term.
