1 TSX Stock to Buy and 1 to Avoid Should We Enter a Recession

The TSX today continues to experience great volatility, with the numbers from the United States only making things worse. Canadians could be set for another hike in interest rates this month, as the Bank of Canada remains committed to reducing the inflation rate to 2%.

At this time, there are many analysts and economists who recommend staying the course when it comes to changing your portfolio. While I certainly don’t object, there are other considerations as well. This will include the types of stocks that are good to buy during recessions and the ones to avoid.

Today, I’ll look at two that investors can consider when it comes to recession-proofing their portfolios.

Dream Industrial REIT

First, we have a real estate investment trust (REIT). It has become popular recently, as investors are looking for ways to increase their passive income. However, not all REITs are good choices during a recession.

Such is the case, Dream Industrial REIT (TSX:DIR.UN) is a stock I would consider entering a recession. The company remains focused on industrial assets, consisting of assembly, warehouse, and distribution centers. These companies tend to be more resilient during recessions and economic downturns compared to their REIT counterparts, as there is continued high demand for industrial space.

During its most recent earnings report, Dream Industrial REIT announced strong results across the board. Funds from operations increased 13.3%, and the overall portfolio of properties saw net operating income increase an average of 13% as well. Rental income increased 24.7% to $81.5 million, and the stock managed to reduce its net loss to $17.7 million from $442.9 million last year! It currently has $4.7 billion in total equity and a net asset value per unit of $17.03.

That puts the current price of $14.23 per share a steal, with the stock offering a 4.92% dividend yield as well. Shares of Dream Industrial REIT are up 34.5% year to date as of writing.

Magna stock

Then, of course, comes the downside. There are certain stocks that investors want to avoid during a recession or even an economic downturn. These tend to be companies that are influenced by market fluctuations, and you can probably already guess the types of companies that are likely to fall first. In particular, however, there are companies that will be hit hard if consumers start to cut back seriously.

One such company that may experience more innovation in the near future is Magna International (TSX:MG). Magna stock has been through a rough time, with the auto parts company soaring high only to fall in the wake of supply-chain disruptions that have crippled the company. If we continue to experience issues in this area, Magna stock may take a while to recover — especially if higher interest rates and inflation mean more costs for the company.

Magna stock had a strong quarter, with its sales increasing 11% to US$10.7 billion year over year. Magna stock also managed to increase its adjusted earnings before interest and taxes (EBIT) margin outlook to between 4.7% and 5.1%, down from the previous 4.1% to 5.1%. However, adjusted EBIT decreased to US $ 437 million from US $ 507 million last year, with higher production costs and “inefficiencies” in Europe. Therefore, the profit fell to US$275 million before tax, almost half of the US$420 million of the previous year.

Add to this that Magna’s stock went through an acquisition recently, and investors are unhappy with the way the company is managing its cash flow. Since we are still in for more volatility in the future, this looks like a stock to avoid for now.