The TSX-listed Canadian defensive stocks we’ve discovered could fare well in an economic downturn
SmallCapPower | October 3, 2019: Stock markets have been under pressure recently. There have been a few downside risks, which have led to weakening investor confidence including: ISM Manufacturing PMI dropping to 47.8 in September – the lowest reading since June 2009; U.S. Federal Reserve lowering interests rates among U.S.-China trade uncertainties; weakening global trade, which has been shrinking as a percentage of global GDP for the past five years, and a slew of weak IPOs in the U.S., such as Uber, Smile Direct Club, and Peloton. Today we have dug up four TSX-listed Canadian defensive stocks that tend to be less susceptible to market pullbacks.
*Share prices as at October 1, 2019, data obtained from S&P Capital IQ
Park Lawn Corporation (TSX:PLC) – $25.26
Funeral Services
Park Lawn Corporation is the only Canadian, publicly-listed deathcare company. It offers cemetery, cremation and funeral services in five Canadian provinces (Ontario, Quebec, Manitoba, Saskatchewan, and British Columbia) and 10 U.S. states (Michigan, Kentucky, Texas, Illinois, New York, New Jersey, Kansas, Missouri, New Mexico, and Mississippi). Park Lawn has been swiftly consolidating the deathcare industry. In 2016, the Company had ~90 funeral homes/cemeteries and as of August 2019, Park Lawn has acquired an additional ~140 new assets. The deathcare industry is highly fragmented, with no one company having more than a ~15% market share, and as such there is ample opportunity for Park Lawn to conduct further M&A. With the Baby Boomer generation only getting older it is likely that the funeral business will continue to thrive even amongst a market downturn.
- Market Cap: $727.9M
- 90-Day Return: -12.0%
- YTD-Return: +9.5%
- 90-Day Average Trading Volume: 56,530
Dollarama Inc. (TSX:DOL) – $47.46
Dollar Stores
Dollarama is a Canadian value retailer, offering a broad assortment of consumable products, general merchandise and seasonal items through both brick and mortar stores and online. The Company has ~1,250 locations across Canada, providing customers with compelling value in convenient locations, such as strip malls and other high-traffic areas. The Company plans to have 1,700 stores open within 5-6 years. Dollarama’s merchandise is sold at select fixed price points up to $4.00. On July 2, 2019, DOL announced that it had acquired 50.1% of Dollarcity, a value retailer based in Latin America. Dollarcity currently operates 180 stores (44 in El Salvador, 54 in Guatemala, and 82 in Colombia). Dollarcity’s growth plan to 2029 is to reach a target of up to 600 stores within its three existing countries of operation by 2029, with most store growth focused in Colombia. Dollarama has an agreement where it will act as Dollarcity’s distributor, which should help the Company buy larger volumes, decreasing costs. When the economy weakens people tend to spend more money at value retailers and there is the possibility that DOL’s sales could increase during an economic downturn.
- Market Cap: $14,940.5M
- 90-Day Return: -2.0%
- YTD-Return: +46.1%
- 90-Day Average Trading Volume: 688,180
Algonquin Power & Utilities Corp. (TSX:AQN) – $18.05
Utilities
Algonquin Power operates a ~1.5 GW portfolio of renewable and thermal energy facilities in the United States and Canada. Through its business groups, the Company provides rate-regulated natural gas, water, and electricity generation, transmission, and distribution utility services to over 750,000 customers. It also owns regulated water and energy utilities in the United States through Liberty Power and Liberty Utilities. Liberty Power owns a direct or indirect equity interest in more than 35 clean energy facilities. On August 8, 2019, AQN reported Q2/19 results, highlighted by EPS of $0.11 on revenue of $343.6M. Utilities typically perform well in recessionary environments because power is the last thing corporations would cut when reducing budgets and thus it provides AQN with steady, predictable cash flows.
- Market Cap: $8,956.3M
- 90-Day Return: 11.4%
- YTD-Return: 31.2%
- 90-Day Average Trading Volume: 1,050,230
High Liner Foods Incorporated (TSX:HLF) – $10.81
Consumer Staples
High Liner Foods is the leading North American processor and marketer of value-added (“processed”) frozen seafood. Products include breaded and battered seafood, seafood entrées, and raw frozen seafood products. The Company offers its products under Foodservice and Retail brand. The retail channel includes grocery and club stores and its products are sold throughout the United States, Canada and Mexico under the High Liner, Fisher Boy, Mirabel, Sea Cuisine and C. Wirthy & Co. labels. The Foodservice channel includes sales of seafood that are sold through distributors to restaurants and institutions under the High Liner, Icelandic Seafood1, Mirabel and FPI labels. High Liner owns and operates three food-processing plants located in Nova Scotia, New Hampshire and Virginia. High Liner is in the midst of a turnaround under the leadership of a new CEO, who is focused on cost reductions to make the business more efficient. In case of a recession, it is likely that people would continue to buy frozen foods to reduce expenses and this stock could fare well.
- Market Cap: $360.9M
- 90-Day Return: +15.9%
- YTD-Return: +40.5%
- 90-Day Average Trading Volume: 95,460
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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