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1 Recession-Proof Stock You Should Buy and Hold in Your TFSA

Adam Othman
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT

After a few days, we will enter 2020; a year that Canada might be in financial trouble. The housing market bubble and increasing debt exposure can be devastating for the economy, despite the lower interest rates. According to Oxford Economics, a global forecasting firm, Canada’s odds of hitting a recession are high in 2020.

If a recession hits, your investment portfolio will be at considerable risk. While nobody can predict precisely when the economic downturn will hit Canada and how bad it will be, even a mild recession can see years’ worth of hard-earned gains decimated in a few weeks.

The global financial crisis of 2008-2009 is still fresh in the memories of many, and it proves the possibility of a catastrophic economic gyration.

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We are just over a decade past the last major economic depression. While investors are fearing the next one, few are taking the active measures needed to protect their portfolios from the effects of a recession.

Do you want to protect yourself from the next significant downturn in the global economy? There is a chance you can pull that off without compromising on upside potential through phenomenal stock trading on the Toronto Stock Exchange.

I am going to discuss Constellation Software Inc (TSX:CSU), a Canadian tech giant that could mitigate your risks in torrential financial times while delivering excellent long-term returns.

Constellation Software

A company with a market capitalization of $26.87 billion, Constellation Software, is a titan on the TSX. The dividend yield for the company’s stocks stands at 0.47% at the time of this writing.

While it may not seem like much, the fact that CSU’s stocks trade for $1,266.87 per share might make a difference in how you see the dividend yield. CSU has been paying $1.00 per share to its investors consistently every quarter.

CSU’s dividends are not the most impressive factor to discuss, however. In the last 13 years, the company’s share prices have increased by over 6,000%.

An investment of $5,000 in 2006 could be worth more than $320,000 right now. This year, CSU shares have gone up by almost 50%, which demonstrates that the tech giant has not stopped growing in value.

The need of the hour

When preparing your portfolio for a recession in 2020, you should consider investing your money in the stocks of a company that will continue to perform well, despite a challenging financial environment.

Companies in the restaurant industry and the medical sector will still be essential as people need food and medicine.

Constellation Software is a tech company. What can a tech company offer clients that will keep it afloat during a significant economic downturn? The answer is automation.

Constellation has enjoyed its meteoric success in the tech industry because it has figured out how to capitalize on automation better than any of the other companies I’ve seen. Constellation’s portfolio consists of a host of niche products that automate critical processes for industries across the board.

If and when the global economy slows down, businesses will need to limit the number of employees and deliver results at the same time.

In a market where companies in various industries need to reduce expenses, layoffs are likely. CSU offers clients the opportunity to cut costs and maintain operational efficiency through its automation solutions.

Foolish takeaway

During bad economic times, Constellation Software can offer shareholders consistency and stability. On the other hand, the company can provide fantastic returns through sky-high profit margins and contract renewal rates in a stable economic environment.

As an investor, you should consider taking a better look at Constellation for your portfolio to protect yourself from the next recession.

More reading

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software. Constellation Software is a recommendation of Stock Advisor Canada.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019