While Canada boasts one of the richest natural resource reserves globally, I often feel frustrated by the economic strategies shaped by what appears to be shortsighted political decision-making.
Instead of capitalizing on these vast resources, our economy heavily leans on sectors like real estate, banking, insurance, and operates just two major railroads—it’s almost as if we’re stuck in the 1900s.
Given this landscape, if I were to invest in Canadian stocks—which I currently do not—I would lean towards defensive stocks. These are the companies that, in my opinion, are better equipped to withstand what might be a decade of economic stagnation ahead.
Here are my top TSX picks for defensive, low-volatility stocks that offer stability in uncertain times.
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What makes a stock defensive?
First, I consider the sector from which the stock originates. Does it belong to an industry providing essential services and products? The key sectors here are healthcare, utilities, and consumer staples.
These are industries that thrive on consistent demand regardless of economic conditions because people always need healthcare, electricity, water, and everyday household and food items.
Next, I examine the stock’s beta, which is a measure of its volatility relative to the overall market. A beta represents how much a stock’s price is expected to fluctuate compared to market movements.
In my view, for a stock to be classified as truly defensive, it should have a beta of 0.25 or less. This low beta indicates that the stock is significantly less volatile than the market, which has a beta of one.
Fortis
First up is Fortis (TSX: FTS), a company primarily engaged in the regulated utility business, providing essential electric and gas services to customers across North America.
Due to the regulated nature of its operations, which often results in stable and predictable cash flows, Fortis boasts a low beta of 0.19.
This low volatility is characteristic of the utility sector, as the demand for utilities remains relatively constant, regardless of economic fluctuations.
Additionally, Fortis holds the title of being one of Canada’s few Dividend Kings, having increased its dividends for over 50 consecutive years. As of June 6, the stock offers a dividend yield of 4.23%.
Loblaw
My other pick is Loblaw Companies (TSX: L), a familiar name to most Canadians, as you’ve likely shopped at one of their many brands, including Loblaws, No Frills, and Shoppers Drug Mart.
Recently, the company has been in the media spotlight due to controversies over its pricing strategies, with some commentators on some social media sites like Reddit advocating for boycotts.
As an investment, however, Loblaw presents an ideal defensive pick. It is Canada’s largest grocery retailer, which makes it a staple in the consumer staples sector, known for its resilience during economic downturns.
Loblaw has an even lower beta than Fortis, at 0.14, reflecting its stability in volatile markets. While Loblaw may not be as generous with dividends, offering a yield of 1.27%, it has historically provided more share price appreciation than Fortis.
