Stock market downturns can be terrifying for investors, especially with the high cost of living, and it keeps getting worse. In times like these, stock market investing can be the only way to make sure you can stay afloat and plan for a good retirement. Unfortunately, identifying the right investments to navigate the volatile market is easier said than done.
While bear markets are scary, investors should not remain sidelined and out of high-quality investments that can pay off well in the long run. The cyclical nature of the stock market and its historic performance prove that things get better once the dust settles. When the market looks difficult to invest in, that is the time to find amazing opportunities to lock in substantial wealth growth potential.
Defensive stocks are the best option for investors who want to minimize the risk to their capital without compromising on growth. Today, we will be discussing a stock from a typically boring industry that just went through a 5.7% correction. It is a stock pick that I think can be an excellent long-term investment.
Hydro One
Hydro One Ltd. (TSX:H) is a $34.1 billion market capitalization Canadian utility stock that has been putting up an impressive performance this decade. Since January 2020, the stock is up by 127.8%, despite a recent 5.7% dip in share price. Typically, Canadian utility stocks tend to be boring due to a lack of much upward movement in share prices, which is a fair trade-off for stability in unstable markets.
What sets Hydro One apart from its peers is its significant growth in an industry otherwise known for tepid gains. I believe that one of the key factors contributing to its growth is Hydro One’s monopoly over Ontario’s transmission lines. The grid effectively relies on Hydro One, and it has growth outlets south of the border.
The stability of operating a monopoly in Canada while raising the bar on its earnings growth gives Hydro One a unique position of growth backed by stability. At current share prices, it trades closer to a price-to-earnings (P/E) multiple of 25. For context, the stock would outright be considered a cheap bargain if it had a 20 P/E ratio.
Foolish takeaway
As of this writing, Hydro One stock trades for $56.75 per share and pays investors $0.35 per share each quarter. This translates to a 2.5% dividend yield, which is not too high. Despite the meager dividends and premium valuation, Hydro One boasts a 0.4 beta and predictable growth visibility. In my view, these qualities make it a compelling buy for anyone with a long-term investment strategy.
It is important to note that despite the highly defensive nature of the industry and unique position it enjoys, Hydro One stock is not immune to the effects of macroeconomic conditions. Downturns in share prices might impact the stock. However, its defensive moat and the historical performance of utility stocks make it possible to consider remaining invested in the stock and leveraging the recovery for long-term wealth growth.