The stock market has been rebounding this year, but signs of a recession are also showing up. There are many similarities between now and 2008, just before the Global Financial Crisis struck. For instance, loan delinquencies in the United States have again increased. The Fed announced a 50 basis point (bps) rate cut instead of 25 bps, surprising the market and borrowers.
And some stocks are already responding: Insurer Manulife Financial’s (TSX: MFC) stock price recently surged back to its 2008 prices. Generally, demand for insurance increases when risk increases.
Why now is the time to invest in stability
By definition, a recession occurs when the gross domestic product (GDP) growth is negative for two consecutive quarters. Both Canada and the United States have managed to avert recession so far. Still, now may not be the time to get cute and make risky investments that are highly dependent on a strong economy.
The next six to seven months will be a period of economic uncertainty. In my opinion, it’s better to prepare your portfolio for the worst by investing in stability.
Top defensive stocks to buy now
While recession fears loom, evergreen stocks and contrarian buys can help absorb the shocks, and you won’t miss out on the equity returns.
Enbridge stock
The evergreen dividend stock Enbridge (TSX:ENB) can give you a 6.5% annual return in the form of its dividend yield. The stock itself will fall in a weak economy. However, it could recover to its $45-$55 price range once the economy stabilizes. And regardless of the stock price, Enbridge’s dividends will keep coming in all economic cycles; the company has paid out regular dividends for more than 60 years.
Enbridge pays 60% to 70% of its distributed cash flow (DCF) in dividends. The DCF is the cash flow left after paying creditors, meeting operations expenses, and setting aside capital spending. The company has a 30% to 40% buffer, which it can use to continue paying dividends in difficult times.
Enbridge is a stock you can buy anytime, and especially when it trades below $50, as you can lock in a 7%-plus yield.
Barrick Gold stock
Investing in Barrick Gold (TSX:ABX) is a better investment than buying gold because gold stocks pay dividends! Beware that Barrick’s stock price fluctuates with the commodity’s price. The price of gold tends to rise in times of economic uncertainty, so Barrick’s stock price has zoomed in those periods.
The company has also expanded into copper, which gives it a more stable income given the high use of the metal in various industries.
Barrick isn’t a long-term investment as it’s a cyclical stock. But it could be a great buy today if you’re worried about economic uncertainty.
CT REIT stock
CT REIT (TSX:CRT.UN) is a real estate stock you could consider buying anytime. Although real estate prices are sensitive to the economy, CT REIT is lower-risk stock because most of its property portfolio is made up of Canadian Tire stores. That ensures a high occupancy rate of more than 99%. Moreover, the REIT has very little mortgage ($8 million) and mostly debentures and Class C units that get renewed every time.
The REIT is among the few that have increased its distributions annually in the last 10 years while reducing its payout ratio.
The major risk to CT REIT is that it’s highly dependent on its parent. If Canadian Tire decides to close a lot of stores, the distributions could be affected. And if property prices slump, it could affect the REIT’s unit price — but it could still pay distributions.
All three stocks could mitigate the downside risk in today’s economy and keep your investing confidence intact.
