Developing a portfolio completely immune to weak markets and extreme conditions like market crashes and recessions is impossible. However, you can still create a relatively resilient portfolio that may be able to survive recessions with relative stability.
The idea is to choose businesses that are either unaffected (to an extent) by recessions or are used as a hedge against the downturn because of their contrarian performance trends.
A utility company
Thanks to their business model, utility companies are resilient against recessions and weak markets. The revenue stream for these companies is the bills that their millions of consumers pay and prioritize over most other expenses, regardless of the state of the current economy.
It’s a necessary expense and, thereby, relatively safe from the recession that impacts discretionary spending (and associated businesses) the most.
Fortis (TSX:FTS) is among the best utility picks in Canada for several reasons. It’s a healthy international utility business with 10 different utility operations under its portfolio and over 3.4 million consumers in multiple countries. About 99% of its utility assets are regulated, adding another security layer to its revenue streams.
Then there is the return potential of the company. It has been growing its dividend for 49 consecutive years and is on the verge of becoming the second Dividend King in Canada. The yield is usually quite decent at 4.2% right now. The stock also experiences modest growth over time, improving the collective returns.
A gold mining company
Gold is the natural hedge against the market, and it usually experiences an uptick during market crashes and recessions. This trend bleeds into gold stocks like Agnico Eagle Mines (TSX:AEM), so if you are looking for stocks that can help you prepare your portfolio against recessions, it might be an investment worth considering.
Agnico is an international gold producer with production-level mines/facilities in Canada, Mexico, and Finland and exploration facilities in Colombia and the United States. It has been operating since 1957 and has a long and consistent production history.
The stock performed well during the last recession. It slumped alongside the market but started recovering faster than the broader market and was close to its pre-crash valuation in less than a year. It may offer similar resilience and recovery in a future recession as well.
But it’s important to understand the downside of buying into gold as a hedge against inflation. When the market is healthy and bullish, the interest in gold (as a hedge) fades, and it may perform poorly. Agnico’s 40% decline from its 2020 peak is an example of that. However, this decline has resulted in a relatively attractive valuation and a modestly high yield of 3.3%.
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Foolish takeaway
The two stocks can help you generate a reliable dividend income during the recession and other bear markets. They also add a significant amount of performance resilience to your portfolio, especially during a recession, but you have to embrace the lacklustre performance in a bull market, at least from the gold stock.
