Back at the end of January, the International Monetary Fund (IMF) released a report saying that the UK would be the only major economy to have shrinking growth this year. However, data since then has improved, leading some to forecast that although we won’t grow this year, chatter around a recession is now less likely.
The situation is still very uncertain though, so to protect a portfolio here are several stocks to buy (or at least consider).
Banking on staples
The first two come from the food and drink sector. More broadly, this gets encompassed in the consumer staples category of the stock market. This area historically has held up well during past recessions. The factor that makes it appealing is the essential nature of businesses in this space. We all need to eat and drink, regardless of how hard the cost-of-living crisis bites.
Granted, we’ll move away from premium brands to more affordable ones. That’s why my two picks from this area are Premier Foods and Cranswick.
Premier Foods owns household names such as Mr. Kipling and Angel Delight. It has a strong and diversified portfolio within the food space. Importantly, most of these products are not luxury in nature, so I’d expect sales to remain strong even during an economic downturn.
As for Cranswick, it focuses more on meat. This includes some vertically-integrated areas such as fresh chicken, where it controls the breeding through to the sale of the produce. This should help it to be more in control of costs if things get tough down the line.
A risk for this area is the competition with supermarket own-brand products. If consumers get very price conscious, these brands could struggle from the very clients that are stocking them!
Being global in nature
Investors can also take advantage of companies that don’t just trade in the UK. In this way, even if the economy suffers this year, it shouldn’t have a material impact on revenue.
Glencore and HSBC are two good examples. Glencore is a global commodity powerhouse. Of course, London is an important strategic site for operations. Yet I’d argue other countries have a bigger swing for the business. This includes the likes of Australia, where it’s the largest miner of fossil fuels.
As for HSBC, the global bank has operations in 62 countries. In fact, it has more branches in Canada than in the UK! Granted, the UK is a good source of revenue, but the diversified nature of income is appealing for an investor.
The benefit can be turned into a concern. If the world economy underperforms but the UK outperforms, these stocks would likely lag domestically focused shares.
Looking for protection
To be clear, if a recession does become a reality, all stocks could struggle to perform. I’m not claiming that the above defensive stocks would rally hard while others fell. Rather, at a relative level, these ideas should outperform other sectors. In such a way, it can help to provide some form of protection.
