The FTSE 100 has held up well, while the S&P 500 and the Nasdaq have dipped into bear market territory. So far, the UK economy is keeping away from recession, even recording 0.5% growth in May. But it’s still teetering on the brink.
So which FTSE 100 shares look like being the best to buy in case today’s grim economic conditions tip us into a lengthy recession? I’ve been looking around to see what the experts think, and there seems to be a fair consensus.
Most are tipping consumer staples shares, and that makes a lot of sense. When we tighten our purse strings to cope with soaring prices, discretionary spend is first to go. Luxury items can take a back seat, but food will never go out of fashion.
Consumer staples
FTSE 100 supermarkets, like Tesco, head up most people’s lists of recession-proof shares. Tesco shares are up 9% over 12 months, but since the start of February they’ve been on the slide again. I can’t help thinking a price-to-earnings (P/E) ratio of 12 makes Tesco a good buy.
Then there’s consumer goods giant Unilever. Down 10% over a year, its shares have been recovering since March. British American Tobacco and Imperial Brands make it on to a number of lists too, as smokers are unlikely to give up during stressful times.
A prolonged recession could depress all of these these though, so they’re not without risk. But I think there’s probably less downside than average with them.
Pick and shovels
Several investing sites, including IG, have highlighted companies like National Grid and Centrica as defensive options. Energy is still in great demand even in a recession. National Grid in particular is a favourite of mine, though it might face long-term legacy risk in its gas network.
An interesting option that I see Proactive going for is London Stock Exchange Group itself. Its shares are down just a few percent over the past year. And whichever stocks win and lose in a recession, London Stock Exchange still gets its fees.
A forecast P/E of over 20 looks a bit high to me though. I guess the safety investors have beaten me to it.
Smaller stocks
Moving away from FTSE 100 shares, Peel Hunt has identified a range of smaller companies that it thinks could weather a recession better than most. The list includes Pets at Home, which I think could be an insightful pick. Pet owners still want to care for their furry, feathery and scaly companions during tough times.
The broker includes home furnishings firm Dunelm too. I guess that could do well from folks putting off house moves and holidays and wanting to remain comfy at home instead.
Contrarian
So what are my picks? I do like the sound of all of these. But I also like the idea of forgetting recession-proof shares and going for the ones taking a hammering instead. Because fear tends to precede reality, they’re generally already down in the dumps. And I rate many as cheap now.
There’s risk of further falls. But my two favourite downtrodden sectors these days are the FTSE 100 banks and housebuilders, including Lloyds, Barclays, Taylor Wimpey and Persimmon.