This time last year, investing in stocks felt easy. With central banks pumping money into the system, and interest rates at rock-bottom levels, the stock market was on a tear.
Today however, it’s a very different story. At the moment, markets are in meltdown mode due to a number of factors, including inflation, rising interest rates, a possible recession, the Russia-Ukraine crisis, supply chain issues, and Covid-19 in China. As a result, investing feels very hard. With the exception of the energy sector, there’s been nowhere to hide lately.
In this environment, finding stocks to buy is certainly challenging. There are very few companies that are not going to be impacted in some shape or form by one or more of the factors I mentioned above. However, some companies are better placed than others to weather the storm (and do well in the years ahead). With that in mind, here are two stocks I’d buy for my portfolio in the current environment.
This stock should be protected from inflation
First up is Mastercard (NYSE: MA), which is listed in the US. It operates one of the world’s largest electronic payment networks.
There are several reasons I view Mastercard as a top stock to buy right now. One is that the company has built-in inflation protection. When prices rise, it benefits since it takes a cut of every transaction.
Another is that it has low exposure to Russia and China. Recently, Mastercard’s CFO told investors that Russia only represented about 4% of net revenues in 2021. Meanwhile, the group has minimal operations in mainland China.
In addition to this, Mastercard is benefiting from the return of travel. Last month, it posted strong Q1 profits on the back of a surge in cross-border spending. And in the long term, it looks set to benefit from the shift from cash to card. This is a trend that has years to play out.
Of course, Mastercard isn’t perfect. If we see a recession and consumers cut back on spending, its revenues could be impacted.
Another risk is the valuation. It currently has a P/E ratio of around 31, which doesn’t leave a huge margin of safety.
Overall though, I see a lot of appeal in the stock today.
A top British stock to buy
Another stock I’d buy right now is Smith & Nephew (LSE: SN). It’s a healthcare company that specialises in joint replacement systems.
To my mind, Smith & Nephew is a relatively safe play in the current environment. One reason I say this is that healthcare spending usually holds up in a recession. If we do see an economic downturn, its sales are unlikely to plummet. It’s worth noting that after the pandemic, there’s a huge backlog of elective surgeries globally, so this should offset any recession-related weakness.
Another reason is that Russia only represents about 1% of group sales. So there’s minimal exposure here.
On the downside, revenue from China represented about 7% of total group revenue in 2021. So, the Covid-19 restrictions could have an impact on growth in the near term.
Supply chain challenges are another risk to consider. This has been an issue for the company during the pandemic.
All things considered however, I see the risk/reward here as attractive. With the stock trading at a reasonable P/E ratio of 18, I see it as a buy for me.