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Smart Stocks to Prep for the Other Side of a Bearish Market

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Written by Joey Frenette at The Motley Fool Canada

The bear market in the U.S. may be nearing the end of its life, as investors continue piling into mega-cap tech and beaten-down blue chips. Though valuations are starting to become somewhat pricier again, Canadian investors shouldn’t sit around waiting for the “perfect” moment to put new money to work.

If you’re planning to invest a sum for the next 10, 20, or 30 years, timing your entry isn’t absolutely critical. You see, with a long-term horizon, you can afford to make a few mistakes here and there. As long as you always consider the valuation process, you’ll be on the right track on a longer-term basis.

Nobody knows if the recent rally in the S&P 500 is the beginning of the end of the bear market. With the S&P 500 up nearly 18% since its lows last October (no bell went off when we hit that local bottom), it’ll take just a few big up days to bring in a new bull.

Indeed, bull markets don’t typically form before a recession has begun. Though many pundits are still forecasting some sort of recession, it may not be a guarantee. Even if we are in for a recession, the bull may still have legs as long as no surprises (like the U.S. regional bank failures we saw in March and April) are ahead of us. One should always be prepared for negative surprises, though. Over the past few years, we’ve seen a pandemic, bank jitters, and extreme levels of inflation. What comes next, though, remains a mystery.

In this piece, we’ll consider two stocks that I think will do well in the next bull market, however long it lasts.

Fairfax Financial

Fairfax Financial Holdings (TSX:FFH) went from multi-year laggard to one of Canada’s best performers. The stock is now going for $971 and change. I think the $1,000 mark could be hit up ahead, as investors reward the insurance and holding company for a stellar year of performance. Prem Watsa, the man running the show, who’s also known by some as the Canadian Warren Buffett, really proved the doubters wrong. It’s hard to believe shares are up more than 176% since its lows in 2020.

With a track record of bucking trends (thanks to smart hedges), a smart value-driven investing approach, and meaningful operating momentum (Fairfax saw its earnings soar to US$1.3 billion, up from just $588.7 million clocked in over the same period last year), I think Fairfax has all the makings of a wonderful investment for the long term.

Even after an applaud-worthy performance, the stock isn’t expensive. It goes for 16.35 times trailing price to earnings. Though it would have been nice to buy a few years earlier, I’m not against nibbling at these levels. Fairfax has the wind to its back. And the wind seems unlikely to fade once a recession happens.

Dollarama

Dollarama (TSX:DOL) is a recession-resilient company that’s continued to gravitate higher in recent years. The stock has been little rattled by the market’s troubles over the last few years. With a 0.73 beta, I expect Dollarama stock will keep moving under its own footing, with less influence from the broader markets.

As a new bull market hits, defensive growth gems like Dollarama may not be in a spot to maximize gains. However, I still view the company as an absolute staple for any long-term portfolio to move through all sorts of economic conditions. At 30.4 times trailing price-to-earnings, you’ll pay a premium for the stock here. If it comes in a bit, shares may be worth consideration, as sales continue climbing higher amid increased demand for value.

Inflation stinks. And Dollarama is one of the places many Canadians have resorted to in an effort to save money and resist soaring goods prices.

The post Smart Stocks to Prep for the Other Side of a Bearish Market appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool has a disclosure policy.

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