Written by Demetris Afxentiou at The Motley Fool Canada
If there was a single word that describes how the market has performed in 2023 it would be volatile. That volatility has helped push the market into a bear market. And while the market gyrations may be temporary, it is important for investors to have stocks in their portfolios that can beat a bear market.
Here are two great stocks that can not only beat a bear market but actually thrive in one.
Start with a defensive pick that can provide an income, too
Fortis (TSX:FTS) is a well-known stock for defensive-minded investors. For those who are unfamiliar with the stock, Fortis is one of the largest utilities in North America. The company boasts 10 operating regions across the U.S., Canada, and the Caribbean.
Utilities like Fortis generate a stable revenue stream thanks to their lucrative business models. In short, utilities provide a service that is backed by long-term regulated contracts. Those contracts span decades in duration, which in turn provide a reliable and recurring revenue stream.
The sheer necessity of the utility service that Fortis provides makes it a compelling option to beat a bear market. This is because, unlike other expenses that consumers cut back on during a downturn, people cannot cut back on basic necessities like utilities.
That stable and recurring revenue stream allows Fortis to invest in growth and pay investors a handsome dividend. As of the time of writing, the yield on that dividend works out to 4.2%.
For those investors who drop $30,000 into Fortis (as part of a well-diversified portfolio), that translates into an income of just over $1,200. Recall that investors who are not ready to draw on that income can choose to reinvest it until needed. This allows an eventual income stream to grow further.
Additionally, Fortis has provided an annual uptick to that dividend for an incredible 50 consecutive years. That fact alone makes Fortis not only a stock to beat a bear market but also an option to buy and hold for long-term gains.
That’s part of the reason why Fortis is one of just a handful of companies that isn’t trading down this year. In fact, Fortis is up 4% year to date, which handily puts it into beat-a-bear-market territory.
Banking on success
When compiling a list of stocks to beat a bear market with, I would be remiss if I didn’t mention at least one of Canada’s big banks. The big banks offer stable revenue, long-term growth and a juicy dividend, and that makes them a must-have for any portfolio.
The one bank that investors should turn to in this market is Bank of Montreal (TSX:BMO). BMO is the oldest of the big banks and has been paying out dividends for nearly two centuries without fail.
Today, that yield works out to a very appetizing 5.24%. This means that investors with $30,000 to invest in BMO can expect to generate a first-year income of north of $1,500. Factor in annual bumps to that dividend and reinvestments, and investors can expect to earn a handsome income over the long term.
Turning to growth, in addition to its core domestic network, BMO also operates a growing U.S. segment. That U.S. segment represents a unique growth opportunity for investors, which can be traced back to the acquisition of California-based Bank of the West.
That deal, which was completed earlier this year, exposed BMO to several new US state markets including California and expanded the bank’s presence into 32 state markets. Additionally, the deal also brought in 1.8 million new customers and billions in loans and deposits.
Collectively, BMO’s growth potential, tasty income, and reliable revenue stream make it a superb option for long-term investors.
Final thoughts to beat a bear market
No stock, even the most defensive is truly immune to market volatility. And when the market does shift to bear territory, the first reaction is often to sell and seek shelter. Fortunately, both BMO and Fortis mentioned above provide ample defensive appeal to investors.
In my opinion, maintaining a position in both stocks is a great way for long-term investors to not only beat a bear market but thrive in one.
Before you consider Bank of Montreal, you'll want to hear this.
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