We are already in the second month of the new year, and it is time for companies to announce their 2023 earnings. The first quarter is generally slow for several businesses as it is time for tax planning. The U.S. Fed is keeping the interest rate unchanged with a note that no rate cuts until inflation numbers ease, which sends a bearish signal for the markets.
Several economists believe Canada is in a mild recession, even if it has not met the definition of two consecutive quarters of negative GDP growth. This recession-like environment will remain in the first half, but the recovery will begin in the later half as interest rate cuts begin.
Three stocks to invest $1,000 in February 2024
The current market expectation makes a few stocks strategically attractive to make money on a recovery rally.
Barrick Gold stock
Gold is a good hedge against inflation and recession. While I am not a big fan of long-term investment in gold, it can be an opportunistic investment to make the most of the current market environment. Instead of investing directly in gold, buying stocks of one of the largest gold miners, Barrick Gold (TSX: ABX), can reduce your risk further and give you dividends during the holding period.
When the dollar weakens, gold strengthens, as it is the next best alternative for the dollar. Hence, gold underperforms in a weak economy and outperforms in a growing economy.
Barrick Gold holds its mined gold in inventory, giving you exposure to gold price fluctuation. The stock has slumped 10.5% since mid-January and is trading closer to its 2022 lows. It is trading in the $21 range as the optimism from easing inflation and pause in rate hikes fades. Now, the challenge is a rate cut, and the wait for it could drive the stock to a $25 price in the first half. And if a recession hits, the stock price could even go up to $30.
Air Canada stock
While gold stock can grow during the market weakness, Air Canada (TSX: AC) stock can grow as the market recovers. The airline is due to report its 2023 earnings on February 16. I won’t be too optimistic about the earnings. But the second quarter of 2024 could see an uptick in summer season revenue growth. And this momentum could continue in the latter half of the year as interest rates fall.
The airline has $5.4 billion in net debt, lower than $7.5 billion in 2022. Over the last two years, Air Canada has witnessed high revenue growth as it is recovering from the pandemic. But this growth will likely slow in 2024 as air travel has returned to its pre-pandemic level. You could consider buying 25 shares of Air Canada for around $455 while the stock trades near $18. You can sell 12 shares when the stock reaches $26 and recoup $390 while holding the remaining 13 for the long term.
Slate Grocery REIT
While the above two are opportunistic buys at the dip, Slate Grocery REIT (TSX: SGR.UN) is a buy-and-hold-forever stock. This pure-play grocery real estate investment trust (REIT) is recovering from the dip but is still down 21% from its 2023 high as the overall real estate market saw a downturn. Declining property prices reduced the net profit of Slate REIT but did not affect its rental income. As grocery stores are resilient to economic downturns, the REIT can sustain weakness and recover once property prices start ascending.
The lower stock price has inflated the dividend yield to over 9%. And this yield will increase as the REIT increases its distribution, as it has done in seven out of the last eight years.
