Canadian stocks have had a strong year, despite all the economic and political turmoil we have seen in the world. The TSX Composite Index continues to reach new highs. It hit a record 30,180 points yesterday!
While it is great to see new all-time highs on the Canadian index, markets could be getting a little overheated. The economy is showing signs of weakness. That could eventually reflect in slowing corporate earnings. With so much market exuberance and elevated valuations, it wouldn’t take much to upset the current course.
It may be time to take a bit more defensive investment approach. If you have some cash, here are two safer Canadian stocks to contemplate owning for a possible market meltdown.
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This Canadian stock is a waste, but here’s why you might want to own it
Humanity produces a massive amount of trash and waste. There will never be a shortage of demand for waste disposal services. One leading provider in Canada and the United States is Waste Connections (TSX: WCN). It is one of the most resilient businesses you can find.
Waste infrastructure (like landfills) and waste networks are very difficult (if not impossible) to just build. If you have the specialized waste assets, you are very likely to be the secured local provider for a very long time.
Waste Connections has very little competition in its operating regions. This provides it exceptional pricing power with commercial and municipal clients. While it is not the fastest-growing business, you can expect it to grow by several times the rate of inflation every year.
Its stock is down 13% in the past six months. At 32 times forward earnings, Waste Connections is trading near its 10-year valuation mean. This stock is rarely cheap. If you can pick it up on a dip (like today), it tends to be a good investment over the long term.
A top Canadian grocery stock
Loblaw (TSX: L) is another Canadian stock you want to hold in times of economic volatility. As Canada’s largest grocer, it provides options to every part of the economic spectrum. It can use its scale and operational expertise to provide the best value for shoppers. Its loyalty program helps keep its customers loyal for the long term.
Loblaw has grown its revenues by a 4.5% compounded annual growth rate (CAGR) over the past five years. However, earnings per share have increased by a 24% CAGR. This proves that it has some very strong operating leverage as it continues to grow its store exposure across Canada.
Despite being a boring business, it has delivered strong 25% compounded annual returns in the past five years. Like Waste Connections, it is not a cheap stock. However, its stock has pulled back 3.5%, so its valuation of 21 times earnings does look a bit more attractive here.
The Foolish bottom line
If you are worried about a recession or a serious stock market pullback, look for essential goods or service providers like Waste Connections and Loblaw. These stocks are almost never cheap because their business quality and earnings power are superior to other Canadian stocks. These stocks tend to have lower betas, so you can expect less volatility than the broader market when Canadian stocks get choppy.
