With markets nearing all-time highs in the U.S. and continuing to chug higher in Canada, investors don’t seem to be too worried right now. Long-duration assets are climbing as expectations of rate cuts are factored into valuation models. Accordingly, everything seems great on the surface.
However, for investors who don’t think the economy is doing that great, there’s plenty to be concerned about. Now, investing requires optimism, and those sprouting doom and gloom will always underperform over the long term. That’s because stocks tend to trend higher over time as the economy grows.
But if we do see a few years of pain on the horizon, there are certain Canadian stocks that could feel it more than others. Here are my three picks in this regard.
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BlackBerry
BlackBerry (TSX: BB) is a Canadian nostalgic gem. This company surged during the previous meme wave, as investors brought back the glory days and took BB stock to highs not seen in years.
Unfortunately, those days are over. BlackBerry has transitioned its business model from being a smartphone maker to a cybersecurity services and IoT company. Currently, BlackBerry offers enterprise solutions like cloud resources, incident response tools, embedded services, and more.
There are some positives to note about BlackBerry, including its high-profile enterprise partnerships and its clientele base. However, the company continues to mint losses, and investors aren’t finding much in the way of top- or bottom-line performance from this name.
Unless something changes, BlackBerry is a company that could continue to see dismal performance on the horizon. In a way, I hope it doesn’t, considering I have an affinity for the brand. But the glory days are most likely over for this Canadian name stay.
Bausch Health
Bausch Health (TSX: BHC) is engaged in the business of manufacturing and marketing pharmaceutical devices along with over-the-counter products. It mainly operates in the areas of dermatology, gastroenterology, and eye health.
Lately, the company has been in the news due to its declining stock price. The company is mainly controlled by institutional investors (shareholders) who own more than 65% of the company’s outstanding shares. While this indicates that the company has credibility in the investment community, the fact that there’s been so much selling pressure is concerning.
Overall, the issue with Bausch is its heavy debt load. If interest rates stay high, this could pose a big problem for the firm, as it seeks consistent earnings growth. Right now, this is a stock I remain bearish on. And while the company has made some progress in paying down its debt and spinning off divisions, it’s still losing a ton of cash. That’s not great for long-term shareholders.
ONEX
ONEX (TSX: ONEX), is among the top private equity firms in Canada. It manages capital on behalf of banks, private and public pension funds, insurance companies, and sovereign wealth funds. The company has its headquarters in Canada and has a presence in the U.K and the U.S.
Notably, Onex is the parent company of WestJet, Canada’s second-largest airline. Thus, this conglomerate has become closely tied to the aerospace sector in Canada and is one of the premier ways investors play the Canadian airline space.
If investors believe that a recession or serious economic downturn is on the horizon, this is a stock I think is best worth avoiding. Airlines don’t tend to outperform when demand plunges. Key operational metrics become skewed unfavourably, and long periods of cash burn can result in burdened balance sheets and years of pain for investors.
The company was able to shift its gear from loss-making to profit-making last year. But according to experts, this company’s revenue is expected to witness a downtrend this year. Considering the current dividend yield, which is also 0.39%, the stock is not attracting many dividend investors now.
For now, my verdict is to simply stay away from this name if you’re not betting on the Canadian economy outperforming for the next few years.
