There are plenty of FTSE 100 stocks with defensive qualities. These are more likely to provide consistent returns even during an economic or market downturn than other stocks.
They also tend to offer goods or services that people continue to buy, even when the economy isn’t doing well. Branded goods are an example of this. But there are other examples, such as water, healthcare and even gold.
And as the UK economy gets weaker, I’m also looking at companies that will benefit from the weakness of the pound.
Smith & Nephew
There’s no doubt the last couple of years have been difficult for medical device manufacturer Smith & Nephew (LSE:SN). And its current share price reflects that. Peers in the industry have also endured a tough time as Covid-19 put many elective operations on hold.
But, finally, things are looking up for Smith & Nephew. There’s a considerable backlog of elective procedure in the UK, and there’s political determination to bring these numbers down.
The stock is currently trading at a discount versus pre-pandemic levels — almost trading for half its near-£20 highs three year ago. Costs are the new concern for investors, with inflation eating into margins.
However, I think Smith & Nephew has the capacity to pass these costs onto its customers. After all, they are necessities. And 2022 isn’t progressing as badly as the share price would suggest. Q1 saw expectations beaten, while Q2 saw continued growth. The company also left its full-year underlying revenue growth guidance unchanged at between 4% and 5%.
The firm also operates in 100 countries and that international customer base should be beneficial as the pound weakens.
I already own Smith & Nephew stock, but would buy more today.
Antofagasta
The Antofagasta (LSE:ANTO) share price has fallen considerably in recent months as copper prices tanked. This metal is the miner’s main product. It’s down considerably this year, but it is worth noting it’s still trading at prices way above the average for the past decade.
So why do I think a copper miner has defensive qualities? It’s not a conventional one for sure, but it’s the metal of electrification, and electrification is at the heart of the global energy transition.
It’s not just electric vehicles requiring more copper than combustion engine vehicles, it’s also an integral part of electric grid infrastructure. So copper demand is forecast to nearly double to 50m metric tons by 2035.
As such, I believe the metal could be more resilient than most people think. Supply has been struggling to keep up with demand for years. And it’s also worth noting that government-backed infrastructure projects are normally used as a way to pull economies out of recession. So this could boost copper demand even further.
I’m also backing Antofagasta as it makes most of its revenue in dollars. Around 25% of revenue comes from Japan, while 17% is from China, and another 17% comes from Switzerland. The UK only accounts for 1%. So this should be good for a pound-denominated stock.
I don’t have shares in Antofagasta, but I’m looking to buy this stock for my portfolio.