We’re heading into fall, and recession worries are in the air. Recently, the New York Fed released a set of charts that pegged the probability of an upcoming recession at 38%. These charts used the three to 10 year bond spread — one of the most reliable recession predictors — as the basis of their forecast.
In the past, the probability of a recession as predicted by the spread was much higher: in 1982, it reached over 90%. Nevertheless, the probability of a recession as predicted by this model is the highest it’s been since 2008.
This means that now would be a good time to start recession-proofing your portfolio. When the majority of economists and several historically reliable models tell you a downturn is coming, you listen.
With that in mind, here are three stocks that have a good chance of performing well in the event of a major North American recession.
Fortis (TSX:FTS)(NYSE:FTS) is Canada’s largest publicly traded utility company. It supplies power to customers across Canada, the U.S., and the Caribbean. The company boasts 3.3 million utility customers and $52 billion in total assets.
As a regulated utility, the company enjoys high barriers to entry and a kind of government-enforced economic moat. The fact that Fortis is a utility means it also stands to do well in recessions, since heat and light are bare necessities that people can’t cut out even in the worst of times.
The stock pays a dividend that yields 3.24% and has been raised every single year for the past 45 years.
Kirkland Lake Gold
Kirkland Lake Gold (TSX:KL)(NYSE:KL) is a young gold mining company that has been going absolutely ballistic in the markets over the past few years.
Since the beginning of 2016, it’s up 2,099% — yet still isn’t overly expensive, with a P/E ratio of 26. When you look at this company’s recent performance, it’s not hard to see why it’s done well. In its most recent quarter, it mined over 200,000 ounces of gold, increased its earnings by 69%, and grew sales by 31%. It also reduced its cost per ounce mined by 29%.
Nobody will deny that this is a high-growth stock. What most probably don’t realize is that it’s also a fairly “safe” bet for a recession, since investors flock to the perceived safety of gold in hard economic times.
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) is a utility stock like Fortis. Much like FTS, it owns assets in both the U.S. and Canada. In fact, with 750,000 customers in the states, its U.S. operations dwarf its Canadian ones.
What makes Algonquin a safe bet for a recession is the fact that, like Fortis, it’s a regulated utility whose services won’t suffer much in hard economic times. However, it may be an even better bet than Fortis. For one thing, its dividend yield is higher at 4.25%.
For another, it’s pursuing an aggressive acquisition strategy that could boost its results in the next few years. Just recently, the company acquired Empire District Electric — a move that added a full 200,000 customers to its list. Big acquisitions like that can be risky, but they can also drive growth.
- Why You Shouldn't Try to Get to $1 Million in Your TFSA
- 2 Canadian Marijuana Stocks to Avoid
- 3 Reasons Why a Buy-and-Hold Strategy Doesn't Work for Every Stock
- Retirees: Give Yourself a Raise With These 3 Passive-Income Machines
- Top stocks for 2019
- Two New Stock Picks Every Month!
Fool contributor Andrew Button has no position in any of the stocks mentioned.
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