There are certain industries that are inherently defensive. This means that these industries show no or relatively little economic sensitivity. As such, they include many attractive stocks to hold when positioning our portfolios for a recession. Here are three TSX stocks that fit the bill.
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Fortis: A defensive stock whose resilience is legendary
A TSX stock that will be a dependable rock in times of a recession is Fortis Inc. (TSX: FTS). Fortis is a utility company, and the utility sector is highly defensive. This is because of two major reasons. Firstly, the utility sector is regulated. This means that a certain level of returns is guaranteed. Secondly, utilities are in demand regardless of the macroeconomic backdrop. We simply always need energy to power our lives.
So, let’s look at what this means for Fortis. Well, this defensiveness is reflected in the stability and resiliency of Fortis’ cash flow. In the last five years, Fortis’ cash flow from operations has increased from $2.6 billion in 2018 to $3.1 billion in 2022 – almost 20%. Similarly, this stability is also reflected in Fortis’ dividend, which has increased every year for the last 50 years. In fact, in the last 29 years, Fortis stock’s dividend has grown at a compound annual growth rate (CAGR) of 6%.
Agnico-Eagle Mines: A TSX stock acting as a safe haven
The gold industry is famously known as a safe haven. This is because the actual commodity, gold, is an excellent store of value. In recessionary times, its ability to hold onto its value is especially evident, as we typically watch other assets tumble along with the economic situation.
Within the gold industry, there are quite a few companies. They all enjoy this characteristic, but many of them have taken on additional company-specific risks that send their stocks on a volatile ride. For example, many gold mines can be found in highly risky and unstable parts of the world. This is an added risk that most gold stocks have to deal with.
At the end of the day, I feel like a gold stock that doesn’t have this added, albeit typical, risk, stands out. Agnico-Eagle Mines Ltd. (TSX: AEM) is this gold stock. Agnico has a long history of operating in politically stable and economically favourable jurisdictions. This means places like North America and Europe. A focus on this, as well as sound financial and operational management, have allowed Agnico to thrive.
For example, Agnico’s strategy has resulted in 30 consecutive years of dividend payments. It has also resulted in a strong balance sheet, strong cash flows, and of course, a history of relative stability. In a recession, these characteristics are highly desirable.
Loblaw: The consumer staples industry is resilient in recessions
The last TSX stock that I’d like to highlight in this article is Loblaw Companies Ltd. (TSX: L). Being in the consumer staples industry, Loblaw is another highly defensive stock. This is because the consumer staples sector includes companies that sell essentials to consumers. This means food, household goods, hygiene products – stuff we always need regardless of the macroeconomic backdrop.
Loblaw has a long history of being a defensive stock that we can count on in times of recession. In fact, in the last 29 years, Loblaw’s dividend has enjoyed a CAGR of more than 11%. Also, revenue and cash flow is growing nicely, as immigration and its position as Canada’s leading grocer is supporting this growth. Looking ahead, this position will continue to benefit Loblaw, even in a recession. Consumer spending on consumer staples products, or essentials, has little sensitivity to the economy. As such, it’s a great TSX stock to own during a recession.
