Bear-Proofing Your Portfolio: Resilient Canadian Stocks to Consider Now

When recessions rear their ugly head, Fortis Inc (TSX:FTS) tends to outperform the market.

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Are you ready for the next bear market?

It might seem early to start talking about another bear market now, what with the last one having ended only this year. However, it always pays to think ahead. There’s no iron law of nature that says that two bear markets in a row can’t take place. The 2020 bear market and the 2022 bear market were only a year and a half apart!

While we’d all hope that another bear market wouldn’t happen soon, it could. Many economists still think that we’re headed for a recession before the end of the year. As the end of the year draws closer, that scenario is looking less and less likely, but it’s worth paying attention to what experts have to say about things. With that in mind, here are three TSX stocks that tend to perform reasonably well during bear markets and recessions.

Fortis

Fortis (TSX:FTS) is one of Canada’s best-performing utility stocks. It has a 4.2% dividend yield, and it has raised its dividend every year for 50 consecutive years. This track record of dividend increases makes Fortis a Dividend King — a distinction that not many other Canadian stocks share.

Fortis stock tends to be very resilient in bear markets. In the 2008/2009 recession, Fortis increased its earnings. At that time, many other companies saw their earnings decline or even turn negative because of the recession that was then underway. Fortis again increased its earnings in the 2020 recession, which was tough on almost all industries. In 2023, the company’s stock price increased, despite a high interest rate environment that was tough on many utilities — especially Alimentation Couche-Tard, which had to cut its dividend after its third-quarter 2022 earnings came out.

Dollarama

Dollarama (TSX:DOL) is a Canadian dollar store chain that, much like Fortis, tends to perform better than average during recessions and bear markets. The reason for this is simple: it sells low-priced items that people tend to buy when times are tough. In recessions, times are indeed tough. Very often, people lose their jobs when recessions occur. Because of this, they need to tighten their budgets, leading to increased shopping at stores like Dollarama, which sells many of the same things grocery stores do but at lower prices.

In the 2020 COVID-19 recession, Dollarama fared well as a business. In the February-April 2020 period, its stock declined only 27% from top to bottom, while the TSX as a whole declined 34%. Additionally, the company increased its sales by 6.3% and its earnings by 1.7% in 2020. This might not sound all that impressive, but remember that during the COVID recession, retailers were losing money and going out of business left and right due to lockdowns. DOL’s performance was relatively strong.

Alimentation Couche-Tard

Alimentation Couche-Tard (TSX:ATD) is another Canadian retailer that tends to do pretty well in recessions. It’s a gas station company, which means it’s somewhat vulnerable to fluctuating oil prices. Oil prices do tend to go down in recessions, but they don’t necessarily go down in all bear markets. Oil prices increased in the 2022 bear market, which was a good time for ATD. More to the point, this company sells more than just fuel. It also sells cigarettes, beer, lottery tickets, and other such items that sell well during recessions. So, it’s worth considering as a recession/bear market play.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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