With a Tier 4 having been introduced in parts of England this Christmas, it’s clear the fallout from the pandemic is very far from over. There’s also the real possibility that despite the action governments around the world have taken to try and prop up economies through this, the stock market could fall again.
If that happens there are some defensive shares – those where demand remains even if the economy slumps – which should do better than most and keep paying dividends.
The energy sector is well placed to survive any stock market fall
Two companies I’d back in the energy sector are SSE and National Grid. The former is particularly well placed to benefit from the transition to renewables. SSE is very focused on wind power in the UK and Ireland.
National Grid could also benefit from exposure to renewables. In 2019 it bought Geronimo Energy in the US – a wind and solar developer in North America. I like National Grid’s US operations as well as its non-regulated activities that could both create platforms for future growth.
Supermarkets: another sector for stable returns
Demand for food holds up in all economic conditions. As a market leader, I back Tesco to keep performing well, even as the discounters keep growing in the UK. It’s become a stronger business in recent years and is now under new leadership. Ken Murphy joined just a few months ago, a former Walgreens Boots Alliance executive.
Tesco has become leaner and more focused on the UK. As such, I’d expect it to be able to provide steady, growing returns in the coming years and remain a strong business.
Technology is here to stay
Technology has been the big winner of 2020. As millions worked from home and shopped online regularly, the transition to a digital world took leaps forward. It was a process that was already happening. This is good news for shares such as Softcat and FDM Group.
The former is a technology reseller with an enviable record. I’ve liked the business for a while and expect it to keep doing well. Indeed, its performance this year shows why it’s a business that might be worth backing.
In its full-year results, back in the summer, sales in the 12 months to 31 July were ahead 8.6% at £1.08bn. Operating profits meanwhile rose 10.9% to £93.7m. Earnings per share were 38.2p, a 10.4% increase.
FDM Group, which is involved in IT training and IT support to businesses is also in a sweet spot for growth in a digital world.
These are five shares that I expect can do well if the stock market falls again. All are very good businesses in my opinion. I think they will grow their share prices and dividends from this point on and reward investors.