Findependence Canada

Finding financial independence from scratch

Recession-proofing your portfolio: Top stocks to prepare for a downturn

Today we’ll be going over our top stock picks for an economic slow down or perhaps even a stock market crash (oh my!). Now, a stock market crash doesn’t have to feel like the end of the world – at least not if you’ve prepared yourself.

While i’m not one for predictions, what I can say is I am seeing an awful lot of stocks hitting all time highs and P/E ratio’s that are increasingly getting out of my comfort zone for purchases. Will I stop buying stocks? Sell everything? Move to bonds? No I won’t be doing any of those, however, what I will be doing is “slowing down” my portfolio just a little bit. In order to do this slowing I will be making a few minor tweaks, not all at once, but over the next several months to try and ensure a smoother experience if we do in fact run into a significant downturn in the markets.

These changes will include the following moves:

  1. Selling off my savings plan in the workplace.
    Reason – This is simple. My savings plan in the workplace is invested every two weeks to the tune of about $1,000 per month. I currently have this as an unregistered account being invested in the broad US and Canadian markets and while I have enjoyed significant gains I’m going to lock in said gains and shift the money into my remaining RRSP and TFSA contribution room. While the account will be drained to $0, the future contributions will continue back into those same funds, there just won’t be as much money in there should a downturn hit. What will I be doing with those funds? Glad you asked:
  2. The first “gain” I’ll see from making this move is just speeding up the process of filling my RRSP, locking in that tax return for this year and unlocking as much capital as quickly as possible by doing so. I’m in a higher tax bracket so getting as much money into this account as quickly as I can has become a priority of mine.
  3. Now the real question, which stocks or funds will this fresh cash be going into? The simple answer is CANADIAN DIVIDEND STOCKS. Specifically, undervalued stocks I manage to find with long histories of making their dividend payments. In particular I will be looking to spread the wealth across consumer staples, utilities and banks.

    To get an idea of the types of stocks i’m looking at here are a few examples:

    Banks- Scotia Bank (BNS), TD Bank (TD), Royal Bank (RY), Canadian Imperial Bank of Commerce (CM), Laurentian Bank (LB) and Bank of Montreal (BMO)

    Utilities- Canadian Utilities (CU), Fortis (FTS) and Emera (EMA)

    Energy- Enbridge (ENB), Inter Pipeline (IPL), Suncor (SU)

    Consumer Defensive- Rogers Sugar (RSI), High Liner Foods (HLF)

    Communications- Bell (BCE), Telus (T)

    Consumer Cyclical- Transcontinental Inc. (TCL.A), Pizza Pizza Royalty Corp. (PZA)

    Real Estate- Brookfield Property Partners (BPY.UN), RioCan Real Estate Trust (REI.UN) , Artis REIT (AX.UN)

So far, of the above companies we have initiated positions in Rogers Sugar and Inter Pipeline to go along with having pre existing holdings in several of the other companies. For our own psyche we find that receiving steady dividend payouts will help us stomach any losses of capital we may or may not take in the coming months and will also ensure some gains should things flatline.

So there you have my game plan, feel free to leave any comments with what you’re doing (if anything) to cut back on the risk of your portfolio or to prepare for slowing growth in the coming years.