The global stock markets have rallied over the past year, despite the world being grappled with one of the worst healthcare crises in human history. The Canadian stock market is no exception. S&P/ TSX Composite, the largest benchmark index in Canada, gained 56.04% since the stock market crash on March 23, 2020, following the news of a nationwide lockdown. The index has registered 3.6% gains year-to-date (as of February 26, 2021), 160 basis points higher than the S&P 500’s 2% returns over the same period.  

The bullish market trends paint a different picture compared to the real macroeconomic situation, indicating an apparent stock market disconnect. According to preliminary estimates, the Canadian economy witnessed its largest contraction on record in 2020, with GDP falling 5.1% year-over-year.  The country has been recovering slowly since November last year, primarily driven by the reviving demand for crude oil. However, the current weakness of greenback reserve currency providing a competitive advantage to the United States and ongoing clean energy drive is expected to be major headwinds for Canadian economy recovery in the near future. As a result, the International Monetary Fund slashed the country’s GDP growth projection from 5.2% to 3.6% in 2020.  

Against this backdrop, the current rally seems unsustainable, and a market correction is long overdue.  The rise in 10-year US treasury yields appears to have kickstarted the projected decline, as global equity markets have declined since the benchmark bond yields hit their 1-year high three days ago. S&P/TSX Composite has declined 2.5% since then, while S&P 500 lost 2.9% since the onset of the equity sell-off. 

It is usual for markets to decline by a margin of 10% or more during a correction. Markets are expected to fall further over the next couple of days as the ongoing equity sell-offs intensify. Thus, investing in recession-proof stocks having a demonstrated history of sustainable performance during a market pullback can help you hedge your portfolio while maximizing return on investments.  

Barrick Gold Corporation (TSX: ABX) (NYSE: GOLD)

Safe-haven assets such as gold are known to gain momentum in times of recession or major economic slump, as people shift from risky equities to high-value metals. Barrick Gold Corporation mines and explores gold and copper across mining properties located in Canada, United States, South America, and Africa.  

While gold prices have slumped slightly over the second half of last year, the precious metal is expected to gain traction in the near term as people begin rotating their portfolios towards less risky stocks as the market slump. ABX is one of the most popular companies in this space, with a stellar financial record.  

Its revenues have increased 29.62% year-over-year, while EBITDA rose 49.03% year-over-year. With a trailing 12-month gross margin of 41.11% and return on equity (ROE) of 11.75%, ABX is one of the most profitable gold stocks trading on the Toronto Stock Exchange. Moreover, the company’s forward PEG ratio of 0.75x is 25% lower than the ideal value of 1x, implying relative undervaluation with respect to its growth potential. 

Constellation Software, Inc. (TSX: CSU) (OTC: CNSWF)

The remote lifestyle has been pivotal in shaping the growth trajectory of the software industry. What was prompted by the series of lockdowns has resulted in a permanent restructuring of the services sector. With most companies adopting a hybrid work environment, CSU has been witnessing skyrocketing growth over the past year. 

With a market capitalization value of $34.92 billion, CSU has generated $3.97 billion in revenues in the trailing twelve months. The company’s quarterly earnings rose at 60.9% year-over-year, outpacing the quarterly top-line growth rate of 14.1%. Its impressive performance has led the stock to make fresh highs at $1745.99 on February 14, 2021. Moreover, the stock has registered 6.07% gains over the past month.  CSU enjoys confidence from institutional investors alike, as a majority of shareholders are assuming long positions in the stock. As of February 11, 2021, only 0.84% of outstanding CSU shares are short. 

CSU has a beta value of 0.67x, which indicates a relatively lower risk. With the global markets demonstrating tremendous volatility over the past couple of months, a comparably stable stock can be a good addition to your portfolio. Its recent addition of technology systems supplier SSP Limited through subsidiary Volaris group has helped the company engage with key markets of insurers and brokers. With the healthcare industry expected to be under the limelight throughout 2021 as the vaccine disbursal continues in full swing, CSU’s latest acquisition should allow the company to secure its growth trajectory from an impending market downturn. 

Shopify, Inc. (TSX: SHOP) (NYSE: SHOP)

The 2020 recession has paved the way for e-commerce companies to accelerate their growth, Shopify, Inc. is no exception. Riding the tech wave kickstarted by the remote lifestyle, SHOP has gained 171.86% over the last year. The stock hit its all-time high of $1499.75 on February 7, 2021, and has gained 13.16% year-to-date as of February 26th.  

A recession-proof growth stock, Shopify has been thriving in the pandemic-restructured world. Operating as a marketplace for small and medium businesses to showcase and sell their products, Shopify has witnessed an influx of sellers owing to the spike in online shopping trends. Moreover, with governments pouring in funds for SMEs to stay afloat following the economic slump and resultant liquidity crunch, these sellers have substantial working capital to remain operational amid a market correction, particularly through their association with a budding e-commerce giant. 

SHOP’s revenues have increased 85.663% year-over-year, and at a CAGR of 63.25% over the past three years. Its trailing 12-month net operating cash flows of $424.96 million reflect strong sales turnover. Also, the company has a gross profit margin of 52.62%, accruing to $1.54 billion over the last twelve months. 

In terms of technical analysis indicators, SHOP is currently trading well above its 50-day and 200-day moving averages of $1269.74 and $1089.20, indicating a golden cross bullish pattern. The stock is poised to reach new highs soon, despite the prevailing bearish market conditions.  

Conclusion

A market correction is unstoppable and has been a long time coming. As global markets are boasting unsustainable growths driven by speculative stocks, these recession-proof stocks are ideal bets on Bay Street now.