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The stock market is heading to a bear stint with growing geopolitical tensions. First, the Russia-Ukraine war and now the Israel-Hamas war. Both have a connection to oil. Russia is one of the largest oil producers, and Israel has a port near the Mediterranean Sea that transports a third of the global oil supply. The market has not yet reacted to the Israel war, as they hope it could end in a few days.
Amid all this, there is a risk of a U.S. shutdown, as Democrats and Republicans disagree on the U.S. government spending.
A bear market is upon us
These events come at a time when central banks have spiked the interest rate to a 16-year high. The high interest is causing financial discomfort to many Canadian households. Credit risk will increase as more mortgages renew at 7% (from below 4% in 2020). The longer the interest rates remain high, the higher will be the credit risk.
If oil prices remain high, the central banks will also keep high rates for a longer time. When you combine the two events, it shows elevated risk of a recession. These uncertainties could keep the stock market bearish for another year or longer.
Three resilient stocks to bear-proof your portfolio
It is time to bear-proof your portfolio with resilient stocks that tend to outperform when the market is down.
Canadian Utilities
Canadian Utilities (TSX:CU) produces and distributes electricity and natural gas to Canadian households and industries. The company will also benefit from the proliferation of electric vehicles, as it also supplies electricity to charging stations. One concern around utility companies is their debt, and Canadian Utilities has a higher debt ($9.5 billion) than equity. But it also has a Fitch credit rating of “A-,“ hinting that it can manage debt. An A- rating gives the utility access to long-term funding at favourable terms.
Despite high debt, Canadian Utilities has been growing its dividend for the last 51 years, enduring all economic crises headstrong. This history shows the stock’s resilience to bear markets.
CU stock has dipped due to seasonal weakness, creating an opportunity to lock in a 6% yield. As the temperature drops, electricity and natural gas usage will increase, leading to a seasonal jump, irrespective of the economy.
Barrick Gold stock
When oil prices rise and market uncertainty grows, investors gravitate towards safe-haven investments like gold and bonds. The gold price surged after the Israel war broke out. But the market has adopted a wait-and-watch approach to the situation. You can get exposure to gold price rally early through Barrick Gold (TSX:ABX).
The mining company operates five of the top 10 gold mines in the world. It produces and sells gold. Hence, it gets additional cash when the gold price increases, which it transfers to shareholders through special dividends. However, the stock is not a buy for its dividend but for its stock price momentum when the gold price rises.
Barrick Gold stock price has been falling since May and is trading closer to its 52-week low. The gold stock could surge 50-60% within a month if a recession hits or the economy weakens. If a recession prolongs, so will the gold stock rally. But it is not a stock to hold on to for the long term, as it tends to underperform in a strong economy. So, sell it at its high.
Descartes Systems stock
Descartes Systems (TSX:DSG) tends to get more business in global trade shocks. The geopolitical tensions disrupt trade, creating the need for optimization, new routes, new suppliers, and a whole new trade setup. Descartes’s Global Logistics Network makes it easier for companies to modify their supply chain.
Hence, the stock rebounds after every dip, making it a buy when the market turns bearish. A rebound could accelerate its returns, as the stock price could increase by 30% or more in the recovery phase.
Bottom line
A bear market is an opportunity to buy good stocks at heavy discounts. Preserve your portfolio with the above stocks, so you have money to buy value stocks in a bear market.
