Like any sport, investing strategies need to adjust depending on the situation. When it’s time to play offense, pull the goalie and go for it. When it’s time to play defense, collapse to the net.
Right now, we’re in an obvious defensive environment. The preservation of capital and corporate survival have become key priorities for many companies. Just a few months ago, many high-flying companies were talking about buying back stock, growth and acquisitions. Today, the broader discussion has shifted to paying down debt, reducing production and maintaining liquidity.
For those looking to go on the defensive in their portfolios, here are three companies that could help with such a rebalance.
Bank of Nova Scotia
Like all financial institutions, Canadian lender Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has rapidly declined from a share price perspective in recent weeks. Net interest margins — or the spread between a bank’s cost of borrowing and the interest rate said bank can lend out at — have narrowed.
Also, the yield curve in Canada and in most countries is either incredibly flat or inverted. Further, the overall financial stability for consumers and corporations (particularly in Canada) have markedly deteriorated due to near-record levels of debt.
That said, Canadian banks have proven to be very stable in economic crises. So for those who believe we’ll all make it out of this mess in a year or so and be back to normal, Scotiabank stock does look incredibly cheap right now. This company also has an amazing yield!
Barrick Gold
Nothing is more defensive than gold. I say this even despite the positive correlation gold spot prices have had to stock market performance of late. This phenomenon is absolutely astonishing.
In most well-functioning markets during stock market crashes, one can expect to see a corresponding increase in safe havens such as gold. This has not materialized.
Unfortunately, this has also not resulted in the stock price performance I’ve expected from solid blue-chip gold producers like Barrick Gold (TSX:ABX)(NYSE:GOLD).
This underperformance is related to two factors. First, gold prices are being impacted by an unduly strong U.S. dollar. Second, gold prices are also underperforming due to margin call related forced selling of highly liquid securities such as gold.
If you believe that these two factors are causing an underperformance in gold, as I do, then Barrick is a great defensive option for your portfolio.
Enbridge
With an absolutely incredible dividend of 7.5% at the time of writing, Enbridge Energy Inc. (TSX:ENB)(NYSE:ENB) is one of my top defensive picks for investors. Enbridge is a large company and possesses significant economic importance to Canada. Enbridge’s overall fundamental business economics are highly defensive.
For these reasons and others, I recently called Enbridge a “cash cow.” The company’s stock price has now officially crossed the ultra cheap threshold, making this an excellent long-term option for investors.
Stay Foolish, my friends.
