So far this year, the market has surged 19%. Despite that impressive gain, there’s still lingering volatility throughout the market. In other words, a correction occurring at some point isn’t fully out of the question. Ultimately, this translates into an opportunity for investors when that pullback does happen.
Fortunately, there’s no shortage of great investments to consider, even during a pullback.
What your portfolio needs during a pullback
Let’s start by stating something that needs to be said. A market pullback is a normal part of the investment cycle. When that does happen (and it will), investors can offset that dip by holding one or more defensive stocks.
Defensive stocks are those that continue to provide stable revenue streams even during downturns. This is because they cater to stable sectors of the market that are less susceptible to market swings. Examples include consumer staples, telecoms, and utilities.
That stability, in turn, means those defensive stocks can continue to invest in growth, pay out dividends, and prevent your portfolio from getting dragged too far down.
A similar, yet less considered option, is to target the inverse. More specifically, the more volatile, higher-growth stocks will drop during a pullback. That drop can often be as much as 10% or more.
Buying the dip (there I said it)
I’ll start here with another disclaimer. Don’t try to time the market, or don’t try to grab a falling knife. There are dozens more analogies, but the point is the same.
So then, when should you buy the dip? To answer that, just look at the longer-term potential, not the short-term losses.
For an example of this, look no further than Shopify (TSX:SHOP). During the pandemic highs, the stock peaked at over $210 per share (that’s adjusted for the 10:1 stock split the company did back in 2022). The subsequent correction that year saw the stock drop down well into the $40 range.
Coincidentally, Shopify broke that pre-pandemic level in the past week. As of the time of writing, the stock trades at $211.
Investors who bought during that dip saw the long-term potential of the stock and also decided to ride the stock back to its highs.
Another superb pick that is in a similar situation right now is Canadian National Railway Company (TSX:CNR). Canadian National operates one of the largest railways in North America, hauling a wide variety of goods across the continent.
Those goods can be anything from automotive parts and chemicals to crude oil, raw materials, and wheat. In total, the railway hauls an impressive $250 billion worth of goods each year.
That fact alone makes the stock one of the most defensive picks on the market. In fact, the railway is often referred to as the arterial vein of the North American economy.
And yet, as of the time of writing, Canadian National’s stock price trades just over its 52-week low. Meanwhile, the railway’s well-covered dividend offers over two decades of consecutive annual increases.
That makes it another compelling option to buy during a pullback (or even sooner).
Sometimes you need a really strong defensive backline
Another key option to consider buying during a pullback (and during any other market season) is Fortis (TSX:FTS). Utility stocks like Fortis provide reliable revenue generation, stable (if not growing) dividends, and one of the most defensive business models on the market.
Fortis generates its revenue from its overwhelmingly regulated utility business. Utilities generate a recurring revenue stream backed by long-term regulated contracts.
That reliable stream lets the utility invest in growth initiatives and pay out a tasty quarterly dividend. Fortis has provided annual bumps to that dividend for an impressive 50 consecutive years without fail.
As of the time of writing, Fortis pays a respectable 3.6%
Load up on these stocks during a pullback
The stocks mentioned above offer a perfect mix of defensive appeal and long-term potential. While no stock is without risk, the three stocks mentioned above are, in my opinion, great options for any well-diversified long-term portfolio.
