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2 Defensive Stocks for 2023 (and 1 to Keep You in the Game)

Illustration of bull and bear
Image source: Getty Images.

Written by Amy Legate-Wolfe at The Motley Fool Canada

Canadians are still on the verge of potentially entering a recession. This is why many economists are suggesting investors go on the defensive with their investments. Now is a good time to get into companies that produce dividends, have seen solid growth, and will keep your funds from crashing during a downturn.

However, that doesn’t mean you should ignore the downtrending market. In fact, it’s a great time to consider creating a watchlist for top growth stocks. Then, when the market starts back up again, you’ll be ready to buy some offensive stocks.

2 Defensive stocks

When it comes to going on the defensive, Canadians should look at companies that will do well during the downturn, and come out strong as well. These should include stocks that have proven to do well during downturns in the past, and continue to trade in strong sectors.

So my first suggestion would be bank stock Bank of Nova Scotia (TSX:BNS). Scotiabank stock is a strong choice because instead of investing in the United States, the company has focused on expanding in emerging markets. This includes Central and South American countries, but in particular Mexico in the last while. Management hopes more exposure to Mexico will lead to even more exposure to Central and South American countries. This could reap large rewards as these emerging markets continue to expand.

It also means Scotiabank stock isn’t subjected to the huge downturn that other Canadian banks with U.S. exposure are going through right now. Instead, BNS continues to trade strong, with provisions for loan losses here in Canada. Shares are down 17% in the last year, trading at 9.1 times earnings with a 6.15% dividend yield.

Another strong choice for defensive stocks would be Nutrien (TSX:NTR). Nutrien stock remains solid as the world’s largest crop nutrient producer. It saw massive expansion during the pandemic thanks to its e-commerce growth. Since then, it has continued to expand, despite the volatility of its stock price.

As a basic materials producer, it’s definitely a solid choice during a downturn. We need food, and arable land needs crop nutrients. So, I would certainly consider Nutrien stock while it’s trading down 29% in the last year, at 4.4 times earnings, and a dividend yield of 3.27%.

1 Offensive stock

Now, for those hoping to create a watchlist for after the market downturn, there’s one major winner bound to make a comeback. That’s Shopify (TSX:SHOP). Sure, Shopify stock has already been trading upwards this year. However, I would hold off. Another downturn could send those wanting returns into a massive sell-off of Shopify stock, even if the company doesn’t deserve the drop.

That being said, long-term investors would certainly do well to consider the company when the market turns around. While the layoffs have been disappointing, the company is now making responsible choices after going through growing pains. No more logistics, just a pure focus on its successful e-commerce business.

Shopify stock is now up 95% in the last year, surging 27% after earnings and these recent business moves. So I would definitely wait for a dip before dipping your toes back into this historically volatile stock.

The post 2 Defensive Stocks for 2023 (and 1 to Keep You in the Game) appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Bank of Nova Scotia and Nutrien. The Motley Fool has a disclosure policy.