While stock markets are near all-time highs, there is no shortage of risks that could hit them. Trump continues to make noise about tariffs with very few resolutions to date. The U.S. government has racked up an enormous debt burden it is unlikely to pay back. Geopolitical tensions in Russia/Ukraine and the Middle East fail to abate.
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Tons to worry about, but feel safe with these types of stocks
Luckily, markets don’t always reflect these risks like we think they should. Investors can still prosper in times of uncertainty. Yet, if you are feeling unnerved in the current environment, that is perfectly okay. It is how you manage your nerves and your portfolio actions that really matters.
Uncertainty can in fact create great buying opportunities. If you want to add some resilient stocks for uncertain times, here are two I would add on major market pullbacks.
Dollarama: A top Canadian retailer
Dollarama (TSX:DOL) might be one of the most recession-resilient stocks you can find in Canada. The company has built out a dollar store empire in Canada. It has basically vanquished all other competition. No other player has the same scale, pricing power, or brand rapport in the segment.
Dollarama has been a very successful investment for shareholders. Its stock is up 318% in the past five years and 635% in the past 10 years.
This is largely due to great execution and consistent double-digit earnings per share growth (18% over the past decade). While its Canada growth should moderate, it has growth levers from its Latin American joint venture and its recently acquired value business in Australia.
Undoubtably, at 43 times earnings, this stock is extremely expensive. Like Costco, it fetches a premium for its brilliant business model and great implementation. While I would not be a buyer at the present, it is a stock I would look at adding on a great market pullback.
Constellation Software: A top software stock
Another stock I’d hold in uncertain times is Constellation Software (TSX:CSU). Like Dollarama, it has delivered exceptional performance. Its stock is up 204% in the past five years and 874% in the past 10 years.
Constellation has built out a software empire that should withstand uncertainty. It operates software catered to niche market segments (like libraries or bowling allies). While they are not exciting horizontal solutions with large markets, they are generally necessary to their customers. Its diversification across countries and industries means it is not overly affected by any one market or sector.
Consequently, Constellation can earn pretty steady income through rough economic times. Likewise, it can be opportunistic in rough economies to acquire larger software businesses at attractive valuations.
As with Dollarama, the biggest challenge with Constellation today is valuation. It has a forward price-to-earnings ratio of 42 times. Its great business, but I likely wouldn’t add until it has a nice pullback.
The Foolish takeaway
If you want to build a resilient portfolio, look for stocks like Dollarama and Constellation. You want stocks that have a great record of shareholder returns, smart managers, a great strategy or brand, recession resilient business models, strong balance sheets, and further room to grow. Add these quality stocks in market pullbacks and hang onto them for dear life through the ups and downs of the market.
