Recession investing, it appears, will soon be a thing of the past. The UK economy is expected to grow by 14.3% in the July–September quarter, after the disastrous contraction of 20.4% in the last one. This prediction is based on a recent Financial Times report, which draws upon an HM Treasury compilation of forecasts by City economists.
This is hardly surprising. June numbers had already shown 8.7% growth as the Covid-19-driven lockdown started ebbing. By extension, economic activity is only expected to pick up speed as more businesses restart. The Bank of England has already predicted a V-shaped recovery. While all sectors will benefit from this, I reckon that consumption-led stocks will be the best ones to buy in this time of recession investing.
Recession investing in three categories
There are three kinds of investments that I’m looking at in particular. One, non-food retail stocks. While FTSE 100 grocers like Ocado and Tesco gained in sales, non-food retailers like NEXT and JD Sports Fashion were hit during the lockdown because their stores were mandatorily closed. But both saw a sharp run-up in share prices even in the current downturn. I reckon they are poised to make more gains as economic activity recovers.
Pubs to make a comeback
The second kind of investment I’m interested in is pub stocks. FTSE 250 stocks like JD Wetherspoon and Mitchells & Butler are two examples. Now, 2020 has been a pretty bad year for pubs and restaurants. This is expected to show up in their financials as well. For instance, JD Wetherspoon expects a loss for the year ending July 2020. However, given both their past performances and the easing of lockdowns, I think they should be good recession investments. I’d wait for their next updates for further confirmation.
Luxury brands can benefit
The third kind is luxury brands like the FTSE 100 stock Burberry. With its vast exposure to the Chinese market, the stock suffered an early blow as this market was the first to be affected. The ensuing months got only worse. However, as the recession lifts, there could be some respite for the stock. Realistically speaking, 2020 will be bad for many FTSE stocks, but over the long term I reckon that Burberry will come out pretty much unscathed.
I bought the stock a while ago, but even if I had not it would be a smart move to wait for its next update to see if I should make it part of my recession investments. Specifically, I would look for a pickup in sales, though the bottom-line is expected to remain under stress.
Recession investing with caution
While making any of these investments, however, I’d remain aware that the recession could return as government concessions are withdrawn. In other words, in time the recovery may well turn out to be shaped like a ‘W’ instead of a ‘V’. But this only means that in the short term these stocks could suffer. Over the longer term, I reckon they will still perform.