The market continues to sway back and forth on the TSX today. Many companies have received a boost in share price, only to fall back as investors take their earnings. Yet there is potentially one area that will continue to see a climb, and that’s industrials.
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Why industrials?
Industrial stocks are some of the best investments to make during an economic downturn. Yet not every industrial stock is created equal. Some are considered quite cyclical during these times, so it’s important to consider companies that provide the perfect pairing to an economic downturn.
This would include industrial stocks with exposure to essential goods that are provided even during recessions. These would be companies such as steel companies or those that make replacement parts for machinery. These might see a dip in sales but aren’t going to experience a total collapse.
Furthermore, industrial stocks in many cases are involved in long-term projects. These would include those that operate with infrastructure development or defence contracts. That will continue even during an economic downturn.
What to look for
So, now you’ve got some sectors, but, of course, you’re going to then need to dig in deeper to see which is the best stock among industrial stocks to consider. Again, look for demand of the essential goods they provide. Are these products that people need regardless of the economy? And is the customer base a diverse one, involved in industries such as utilities and healthcare?
Furthermore, you’ll want to look at the company’s financial strength. Stocks that offer low debt, strong cash flow, and consistent profitability are certainly where you want to start.
What’s more, compares that dominate a certain market share are also less likely to see a significant drop in customers bailing during a recession. This is especially true for those offering unique products and services.
Stocks to consider
If you want consistent growth, then you’ll want to look for stocks that fit all these categories. In that case, I would consider Canadian National Railway (TSX: CNR) and Element Fleet Management (TSX: EFN).
In the case of CNR stock, there are many reasons to latch on. The stock operates in a duopoly in Canada, and this limited competition provides significant pricing power and a strong market position. It also transports essential goods such as building materials and grain through a vast network into the United States. What’s more, it has strong finances, with the ability to grow and diversify further.
As for EFN stock, this company is a strong purchase during a downturn. It operates with counter-cyclical tendencies. Fleet management can be seen as a cost-saving measure, outsourcing to EFN to streamline costs. And again, it operates through essential services even during recessions, with a recurring revenue model. This makes it overall a strong company in Canada to consider even during this downturn.
What’s more, both offer a dividend as of writing. CNR stock holds a 1.95% yield, with EFN at 2.15%. So, you’ll receive a bonus of dividends on top! These strong industrial stocks are worthy of consideration today.
