On Tuesday, economic data showed that UK GDP fell by 0.3% in April. Hopefully summer spending will reverse this fall. However, if things do turn sour later this year then I want to be ahead of the game. One way I can do this is by noting some recession stocks that could help to insulate my portfolio. Here are two examples that I’d buy if the economy nosedives.
A defensive stock that’s taken a hit
As a quick disclaimer, no stock is completely recession-proof. If the UK goes into a recession, even a defensive stock could still fall in value. The reason why I’d still buy the specific stock is because it should outperform many other stocks in the index.
The first example that I like is Coca-Cola HBC (LSE:HBC). The share price has fallen by 33% over the past year. From that angle, some might wonder why I’m considering this stock as protection against a recession?
The main reason for the fall is due to the invasion of Ukraine. Most of the tumble came in February when Russian forces entered Ukraine. Coca-Cola HBC had to stop production at the facility in Kyiv, with operations being hampered throughout the region.
However, when I consider the company against a backdrop of a recession, I still think it makes sense to invest. The core product is a consumer staple. Even other third-party bottling requests that it services relate to coffee, juice and some alcoholic beverages. Regardless of the state of the economy, I feel that consumers will still buy these goods.
In fact, when I consider the valuation, I think I might buy the stock now and not wait! The fall has reduced the price-to-earnings ratio down to just under 14, making it a much more appealing play than it was at the start of this year.
A recession stock from the utility sector
The second stock that I think could hold ground well in a recession is Severn Trent (LSE:SVT). The water stock doesn’t just have operations in the UK, but also some diversification from the US and Europe. Over the past year, the share price is up 13%.
My focus is on the UK business. As a utility provider, I don’t feel that the households and businesses it supplies to will cut off water in a recession. It could see lower demand as consumers reduce water usage to try and save money. Yet we all need water for a variety of uses, and this won’t stop during whatever stage of the economic cycle we’re in!
The full-year results for 2021 also impressed me. Group turnover increased 6.4% year-on-year, with profit before interest and tax also up 7.5%. This enabled the dividend per share to tick slightly higher, meaning that the current dividend yield is 3.57%.
This recession stock isn’t perfect, though. There have been some issues recently regarding concerns about the sewage and cleanliness of some plants. The company has to be careful to sort this out to prevent reputational damage that could impact the share price.
I’m putting Severn Trent on my watch list for the moment. If the UK does head towards a recession, I’ll be investing.