With the broad markets finishing last week with increased turbulence, Canadian investors may wish to rotate back into some of the lower-volatility defensive names as we move towards a choppy end of June. Indeed, with Trump’s tariff war and the Israel-Iran conflict going on, investors had better get used to more days like Friday. And though the TSX Index and S&P 500 may seem a bit toppy after a robust rally off the recent market correction, I still think it doesn’t make a whole lot of sense to bail on equities as a whole, just because the broad market has gained double-digit percentage points in just two months’ time.
In this piece, we’ll go over a pair of low-volatility stocks that can help make the potentially rough ride into the second half somewhat more bearable. Also, the following names could act as great portfolio stabilizers as a number of corrections, pullbacks, and panics are sure to appear over the extremely long term (think decades out).
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Hydro One
Shares of Hydro One (TSX:H) are a go-to whenever volatility makes a comeback and investors get rattled over a new slate of issues and worries of a looming crisis. With incredibly high barriers to entry surrounding its transmission line business (some may refer to it as a monopoly of sorts), there’s really no rocking the steady ship that is the utility’s cash flow stream, even as economic headwinds present themselves.
Just because the stock has a rock-bottom correlation (0.33 beta) to the broad market, though, does not mean the name is immune to the odd pullback. In fact, the name is down just shy of 8% from its high, as the TSX Index surged out of those post-Liberation Day lows, thanks in part to a slight rotation from value back to the recovering growth plays that were most battered a few months ago.
In any case, I’d look to nibble on a few shares as they retreat further below $50 per share. The 2.7% dividend yield may be on the lower end of the historical range, with a valuation that’s a tad on the lofty side (24.3 times trailing price-to-earnings, which is actually quite expensive for a utility stalwart), but if you seek a bond proxy play that can steady your TFSA or RRSP in a scary-looking second half, I’d argue the lower yield and pricer multiple are worth paying compared to its utility rivals that may experience more choppiness once the market weather gets much stormier.
Fortis
Up next, we have Fortis (TSX:FTS), another solid utility stock you’d be glad you own once the markets run into turmoil again. Like Hydro One and most other utility names, the stock is experiencing a bit of a mild plunge (now down just shy of 5% from recent highs). I view the dip as buyable, especially for investors who are getting ready to play defence again.
The stock’s much cheaper than Hydro One (19.7 times trailing P/E at writing) , with a full extra percentage point more yield than Hydro One. Also, the 0.34 beta is around the same as Hydro One, meaning Fortis is a great way to batten down the hatches if you’re bracing for increased market choppiness in the coming 18 months.
With a fairly decent, though not too surprising, Q1 top- and bottom-line beat in the books, perhaps buying the recent dip could prove wise, given the name seems unfairly punished here, dragged down primarily by industry weakness. Between FTS and H, I’d have to go with the former for the higher yield and the lower P/E.
