How to Use a Top-Down Investing Approach Ahead of a Recession

Knowing how to use a top-down investing approach, especially ahead of a recession, will lead you to finding top gold companies, such as Equinox Gold Corp (TSXV:EQX).

| More on:

One of the most popular styles of finding new potential investments is the so-called top-down approach. The gist of top-down investing is to look at the big picture, basically the macroeconomics of an economy, and based on what you see, shape your decision in that direction.

For example, a top-down investor looking at making a Canadian investment would start by looking at the whole Canadian economy.

Depending on their opinion of things and how they weigh certain factors in their minds, they may see the likelihood of a recession increasing, which would then drive them to look for recession-proof industries.

It’s clear that after you have made one or more conclusions about the economy, it’s time to become more specific and decide what industries to invest in and how much of your portfolio to allocate to each industry.

In our example from before, the investor may want to seek out a consumer defensive stock if they think their portfolio needs some stability, or maybe a gold miner if they think gold will outperform.

Deciding which industry to look at is the next crucial step, and you can’t proceed until you have decided what it’s going to be. Once you have decided the industry you want to invest in, it’s time to analyze each stock.

This is where you pit companies against one another to see how well they perform but also how cheap the stock is trading for in the markets.

In the example above, you would want to make sure the gold miner has solid operations, operates in a politically stable jurisdiction, has a quality management team, strong financials, and, last but not least, make sure the stock isn’t overvalued.

One such company in the gold industry is Equinox Gold (TSXV:EQX).

Equinox is an up and comer that just began production in 2018. As are all new gold miners, the stock was undervalued to reflect some of the risk that is present when miners are still exploring and developing the mines.

It’s in full production mode now, and the early numbers have been promising.

So far, of its three mines, two are producing gold and the third has been estimated to begin production the third quarter of 2020.

In the third quarter of 2019, however, its two operating mines produced more than 60,000 ounces of gold at an all-in sales cost of roughly $950. This is very promising considering its average realized price in the quarter for gold it sold was nearly $1,475.

It’s also promising that Equinox’s cost per ounce will most likely decrease, as the company ramps up production and grows its scale.

For the full year in 2019, it expects to produce between 200,000 and 235,000 ounces of gold. All of this production will be done for between $940 to $990 all-in sales costs. This isn’t that low, but it’s not high by any stretch of the imagination and is actually considerably strong for a new operator.

Equinox will continue to stick to its plan, which it thinks can bring it to more than one million ounces of production by 2023.

It’s a high-potential stock that has picked a great time to build out its operations. Building a gold company at the peak of market uncertainty and when gold prices have begun to rally for the first time in more than a decade couldn’t be a better time.

Equinox’s plans to try get listed on the TSX in the fourth quarter could also be a catalyst for share price appreciation, as it will be able to attract substantially more investments.

The bottom line is that a top-down approach looks at how the economy is performing, and which industries have the most opportunities before looking at any stocks.

Once you have decided the portion of your portfolio you will allocate to each industry, you can then begin to look for the top companies to invest in.

Should you invest $1,000 in Automotive Properties Real Estate Investment Trust right now?

Before you buy stock in Automotive Properties Real Estate Investment Trust, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Automotive Properties Real Estate Investment Trust wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa owns shares of Equinox Gold.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Stocks for Beginners

dividends can compound over time
Dividend Stocks

Is Fiera Stock a Buy for its Dividend Yield?

Fiera stock has one amazing dividend yield right now, but what else should investors consider?

Read more »

Technology
Stocks for Beginners

Top Canadian Stocks to Buy With a $7,000 Investment Today

So, you want to put that money to work? Don't overcomplicate things and instead invest in these top choices.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

How I’d Invest $20,000 in Canadian Renewable Energy Stocks to Become Financially Independent

Renewable energy stocks remain some of the best future investments, and these three already show strength.

Read more »

Income and growth financial chart
Tech Stocks

2 Canadian Stocks That Could Turn $10,000 Into $100,000

If you're looking for growth and income, these two are some of the best options out there.

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

The Best Canadian ETFs $1,000 Can Buy on the TSX Today

If you're looking for ETFs that can turn $1,000 into strong cash flow, then these are the ones I'd go…

Read more »

dividend growth for passive income
Dividend Stocks

4 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These dividend stocks can certainly stand the test of time, and have already done so for many investors.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

1 Practically Perfect Canadian Stock at All-Time Highs to Buy Now and Hold for a Lifetime

This top Canadian stock owns many of the brands Canadians use every day, checking all the essential boxes.

Read more »

analyze data
Stocks for Beginners

The Best Canadian Stocks to Buy Right Away With $30,000

These three top Canadian stocks have one thing in common: stability. Let's get into why.

Read more »