In uncertain times—and these certainly count—managing risk is more important than ever for the careful investor. Here are five big economic risks out there right now, and five stocks that could weather the storm if the worst hits.
Risk 1:: The U.S. recovery stalls
Company to consider: Carriage Services Inc.
We’ll all die eventually, no matter the economic climate. That’s an ace in the hole for Carriage Services, a funeral home operator. It’s consolidating a fragmented industry, has free cash flow to finance acquisitions and pays a dividend. Carriage is also reasonably priced for its sector.
Risk 1:: Oil prices don’t recover
Company to consider: Leon’s Furniture
The money people save at the gas pump typically ends up being spent elsewhere, which bodes well for retailers. Leon’s is largely unloved by investors and analysts, which means it’s not overvalued, and it’s a dominant furniture retailer with a strong brand that’s growing its top line. The outlook should improve further as it continues to digest its 2012 acquisition of the Brick.
Risk 1:: Greece defaults on its debt or exits the eurozone
Company to consider: Constellation Software Inc.
Such an event would be a shock to markets around the world and imperil investor confidence. But Constellation has a strong balance sheet, generates copious free cash flow and has a business—enterprise software solutions—that isn’t tightly tied to the economy.
Risk 1:: Alberta’s NDP government raises oil and gas royalty rates
Company to consider: Crescent Point Energy Corp.
Only 4% of Crescent Point’s revenue comes from Alberta. Most of its assets are in neighbouring Saskatchewan, where the government sees its
royalty regime as a competitive advantage. The company also pays a handsome dividend.
Risk 1:: Investors desperately seeking growth push valuations into unsustainable nosebleed territory
Company to consider: Canadian Western Bank
Some investors have abandoned Canadian Western because of the bank’s heavy exposure to Alberta. But long-term investors know the company is a survivor and may—for a change—be undervalued, especially if oil prices hold steady or increase.