My pick of the bunch very much fits this characterisation. Diploma (LSE:DPLM) is a specialist component manufacturer and distributor with a large UK and overseas presence. It makes and ships implements like valves and pipes across the globe for industries such as life sciences.

Its share price is currently down 1.95% over the past five days, as is the overall FTSE 250 index (-1.05%). Indeed, the fate of the two seem linked. Since Brexit and the current British political instability, investors have turned their noses up at FTSE 250 assets. This is somewhat unfair, as they are far from financially underperforming by and large. Diploma is a glittering source of value amid this shamefully overlooked exchange. 

Hidden value

The company has remarkably strong financial fundamentals, giving me much confidence that it will weather the coming economic storms. Despite supply chain chaos and inflation, it is poised to deliver a low double-digit increase of revenue. That this will swell its coffers is demonstrated by the fact that its operating margins are up by 0.2%. This is because it managed to pass on inflationary costs to its consumers, thus insulating it from the scourge of price increases that frequently eat into businesses’ bottom lines.

It also has a low debt-to-earnings ratio — its borrowing costs are covered 10x by its profits, giving it much financial headspace should it run into trouble. Therefore, at the very least it is a reliable store of value at a time when are savings are eroded by inflation. That in itself is valuable, but that is not why I wrote this article.

In my mind, Diploma will emerge from bitter economic conditions in better shape than it is now. This is because of its aggressive growth strategy. Diploma has achieved this by ruthlessly snapping up competitors or suppliers. It acquired 10 companies last year and three so far this year. Its range of services mean that its list of potential companies to buy is very long.

As competitors wilt, Diploma’s sound finances could enable it to buy them at cut-price deals. Its low debt ratio means that it can afford to borrow in order to swallow even meaty entities. Consequently, it could find itself in a position to capitalise on the next uptick of the economic cycle. 

Risk vs reward

In spite of this rosy outlook in the long term, Diploma is not immune to the wider economic climate. It is likely that its growth will slow as its operating conditions are adversely affected, hurting its revenue stream. Its share price will also likely suffer volatility over the coming months as the energy crisis and the fluctuating pound pummels British assets.

However, its long track record of growth, sound numbers and potential for expansion mean that I am buying for the long run.

Bonds

Buffett’s first reason for staying away from bonds is that the returns aren’t high enough. A 4% yield might seem good, but there’s more to it than meets the eye.

Inflation in the UK is currently running at around 10% per year. Getting 4% more cash when the value of that cash is depreciating at 10% means that bond returns are actually negative in real terms.

Rising interest rates are likely to bring inflation down. But the UK’s central bank is aiming for inflation at around 2%.

With 2% inflation, a bond with a 4% yield will return just 2% in real terms. Even over 30 years, it’s going to be difficult to make significant returns at that rate.

Stocks

Buffett also thinks that, over time, stocks generally outperform bonds. The reason is that bonds have fixed returns, whereas stock returns can grow. 

A £1,000 investment would distribute £45 per year in annual payments. These could be reinvested to eventually distribute a total of £2,281.

I think that there are stock investments that I could make today that have a good chance of generating more than this over the next 30 years. One example is Diploma shares.

At today’s prices, Diploma shares offer a return of 3.58%. The stock has a market cap of £2.77bn and the underlying business has £254.5m in debt, £24.8m in cash, and generates £107.5m in free cash.

That’s lower than the 4% offered by the bond today. But I think that the stock can catch up and outperform the bond over 30 years. 

Diploma has increased its free cash flow by an average of 12.5% each year. If this continues, then the company will provide a greater annual return than the bond within three years.

After that, if it continues to grow, it will leave the returns from the bond in the dust. If Diploma grows its free cash at 5% annually for the remaining 27 years, the total investment return will be £10,147.

That’s over four times the return from owning the 30 year bond for what I think is a realistic scenario for Diploma. As a result, I think Buffett is right that it’s better for me to own stocks than bonds.

Investing risks and rewards

Investing in stocks is riskier than investing in bonds. This is especially true with a stock like Diploma.

In order to outperform the 30-year bond, Diploma has to grow its free cash flow. If the business falters or doesn’t grow fast enough, the stock will underperform as an investment.

But it’s on track to achieve the required growth reasonably comfortably and I think that it will. So with the opportunity to buy shares in companies like Diploma on offer, I’m following Buffett’s advice and staying away from bonds.

The biggest misconception when it comes to selecting a good income-generating share is to focus on picking companies that offer the highest dividend. Instead, I like to look for companies that offer a reasonable dividend, normally in the region of 2-3%. The company should also have been paying this dividend consistently for over 20 years.

Sage Group

The first company on my list is Sage Group (LSE: SGE), a provider of accounting software. The company focuses primarily on the UK, USA, and Europe, and has been operating for almost 40 years.

Sage has paid a dividend for 30 years and has grown that yield for the last 21 years. It currently offers a dividend of 2.6%, which — although not the highest in the index — is still a fair return if delivered consistently.

The underlying fundamentals of Sage are also strong, with significant cash flow generation and considerable profit margins. However, it’s important to note that despite the share price falling almost 19% this year, it’s still trading at a price-to-earnings (P/E) ratio of 30.3. This is very high in the current market. Indeed, it could indicate that the company is potentially overvalued despite its quality fundamentals.

Nonetheless, I believe that the opportunity to access such a consistent dividend yield is worth paying a premium for. Therefore I would add Sage Group to the income stock section of my portfolio.

Diploma

The second company on my list is Diploma (LSE: DPLM), an industrial product supplier based in the UK. The company currently offers a dividend yield of 1.9%, although this is forecast to increase to 2.2% next year.

Diploma has also paid a dividend consistently for 30 years. The company has grown its yield for over 20 years. This level of consistency is why I would still consider the company a good income-generating share, despite the yield being lower than many of the typical examples of dividend-focused investments.

Furthermore, the company has very encouraging underlying fundamentals. It has significant cash generation, high forecast earnings growth, and a respectable level of earnings efficiency on invested capital.

That being said, the company is currently trading at a P/E ratio of 26.1. This is above the FTSE 250 average P/E ratio of 22 over the last 30 years. It is also worth mentioning that the current yield of 1.9% is considerably below the average FTSE 250 yield of 3.5%. This could indicate that the company may be overvalued. Furthermore, this increases the risks of share price declines over the next few years, potentially offsetting any income generated.

Despite this, I do consider Diploma to be a good income investment opportunity, as its consistent and growing dividend yield is worth paying a premium for. Therefore, I would add the company to my portfolio.

Filling out my ISA this month is a bit of a risk, since I won’t be able to add funds to that account again until April. But share prices to me look attractive enough to justify buying now, rather than waiting for bigger dips. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Great businesses

I’m concentrating my attention on what I think are the highest quality UK stocks. And there are two metrics I’m using to measure this.

The first is how much operating income a company can generate using its tangible assets. The second is what proportion of their operating income becomes free cash.

I’ve got quite a few UK stocks on my radar, but I’ll concentrate on two here. They are FTSE 100 stock Experian and FTSE 250 stock Diploma.

These generate strong profits. Crucially, though, they don’t have to reinvest much of the money they make, allowing them to provide a return to their shareholders.

Experian has a 329% return on its tangible assets and 94% of its operating income becomes free cash. Diploma returns 144% on tangible assets, 92% of which is available to shareholders.

Stocks to buy in October

These are the kinds of great businesses that I like to own in my Stocks and Shares ISA. And I’m especially interested in buying them in October.

Experian now has a market cap of £24bn. Given the company’s debt and assets, it generates a free cash return of over 4%.

There’s clearly risk with this business with the number of mortgage applications declining. But I think that this could be a great value proposition for the long term.

With a market cap of £2.8bn, Diploma currently offers a return of just over 3.5%. I’m extremely confident in the company’s ability to grow its earnings over time, which makes the stock attractive to me at these levels.

As with Experian, Diploma shares carry a risk with the prospect of an economic slowdown. But this is another stock that I’m keen to buy while I think that the market is mispricing the company’s longer-term prospects.

Following Warren Buffett

Warren Buffett says that it’s better to buy a great business at a fair price than a fair business at a great price. So I’m focusing on quality UK companies, like Experian and Diploma.

But Buffett also says that it’s possible to pay too much for a wonderful business. That’s why I wasn’t buying Experian shares when they were priced at £36 or Diploma shares at £35.

At today’s prices, though, I think that these companies offer promising returns for shareholders. As such, I’m looking to buy both in October to fill my Stocks and Shares ISA.

The stocks in question are Diploma (LSE:DPLM) and Experian (LSE:EXPN). I don’t own Diploma shares yet, but I do own Experian. Here’s why I’m looking to add one to my portfolio and increase my investment in the other.

Recession

It looks to me as though the UK is heading for a recession. Energy costs are rising, inflation is high, and the Bank of England’s best attempts at stemming the tide don’t seem to be working. 

As a result, I’m expecting things to get worse before they get better and looking to be cautious in my investing at the moment. For me, that means two things. 

First, it involves focusing even more carefully than usual on high-quality businesses when I’m looking for stocks to buy. In an unhelpful macroeconomic environment, I don’t want to be taking unnecessary risks.

Second, it involves being especially conservative in valuing stocks. That means being realistic in estimating what the underlying businesses will produce in the future and working out how much I’m prepared to pay accordingly. 

Quality

At first sight, it’s hard to see how Diploma and Experian fit the bill. Both of the stocks look like they have optimistic growth assumptions built in.

Diploma currently trades at a price-to-earnings (P/E) ratio of around 41. Experian looks a bit more reasonable at 24 times earnings, but it still looks risky.

Beneath the surface, though, there’s a lot more going on. Both companies have exceptional cash conversion ratios and I think this makes them attractive stocks at current prices.

Diploma converts just over 92.5% of its operating income to free cash. Experian is even better – over 94% of its operating income becomes free cash flow.

This is extremely impressive. For context, both of these numbers are more impressive than Alphabet (84%), Apple (89%), and Meta Platforms (91%).

According to Warren Buffett, the value of a business is a function of the cash it will produce. And I think that both Diploma and Experian generate enough cash to offset the risk implicit in their respective P/E ratios.

Valuations

With interest rates forecast to reach 4% next year, I’m looking for an expected return of 7% per year from a stock investment. 

For Diploma to achieve this, its earnings per share need to increase by around 15% annually. That seems like a lot, but I think that the company has a lot of opportunities ahead of it and a management team that is able to take advantage of them in intelligent ways.

In the case of Experian, the business needs to grow at an average of 12% annually for the next decade. Since it’s been growing at closer to 15% over the last 10 years, I believe that this is achievable.

That’s why I think that both Diploma and Experian are strong buy stocks for me at the moment. I’d be happy adding shares of either to my portfolio at today’s prices.

Technical products

As a quick introduction, Diploma is a specialist provider of technical products to a number of sectors. The business is split into three main areas, which are Controls, Seals, and Life Sciences. In Controls, it supplies wiring, connectors, adhesives, and more. In Seals, it sells seals, cylinders, gaskets, and more. Finally in Life Sciences, it offers consumables needed for healthcare and environmental science purposes.

So what’s happening with Diploma shares currently? Well, as I write, they’re trading for 2,412p. At this time last year, the stock was trading for 3,024p, which equates to a 20% decline over a 12-month period. Many UK shares have fallen recently due to macroeconomic pressures.

The bull and bear case

So let’s take a look at some bull and bear aspects of Diploma shares. I’ll start with some positives.

Firstly, I’m buoyed by Diploma’s diverse business model as well as its global profile and presence. By splitting the business into three areas, it is set up to generate revenue from different avenues and sectors through a multitude of products. Furthermore, this diversity offers it a global footprint through all its offerings.

Next, I like the fact that it does not manufacture its own products. In fact, it is more of a value-added reseller. This means it doesn’t have to contend with costly plants or factories and can generate much more cash this way. This is where I believe it can provide consistent and stable returns to potential shareholders.

Finally, I can see Diploma has a good track record of performance growth recently, although I do understand that past performance is no guarantee of the future. Looking back, I can see it has grown revenue and gross profit in three out of the past four years. In 2020, levels dropped slightly due to the pandemic. With performance growing, and the business generating lots of cash, Diploma currently offers a dividend yield of 2%. I am conscious that dividends are never guaranteed, however.

So to the bear case then. One of my biggest concerns for Diploma is that it is currently at the mercy of macroeconomic headwinds. This is because soaring inflation and rising costs could impact its buying price for the products it resells. Rising costs could put pressure on profit margins, which in turn, could affect levels of returns.

Another issue is the current supply chain crisis. Diploma has built a reputation on serving its customers effectively and efficiently. With supply chain constraints, could it lose customers or even experience damage to its brand despite the crisis being out of its control? This is a development I will keep a close eye on.

My verdict

To summarise, Diploma looks like a well-run business with lots of potential to boost my holdings. There are risks to consider but I believe these are shorter term. I’m buoyed by its diverse business model, as well as the fact that the business is cash-rich and has a great balance sheet. I believe this will support growth and boost returns too. For that reason, I would buy Diploma shares.

Are any of these worth investing in at today’s prices? To find out, I look to Warren Buffett’s advice.

Buffett’s approach

At the 2000 Berkshire Hathaway Annual Shareholder meeting, Buffett said the following about growth stocks:

Let’s just take a company that has marvellous prospects, is paying you nothing now, and you buy it at a valuation of about $500bn. Now if you feel that 10% is the appropriate rate of return – and you can pick the figure – that means that if it pays you nothing this year, but starts paying next year, it has to be able to pay you $55bn in perpetuity each year. But if it’s not going to pay until the third year, then it has to pay you $60.5bn in perpetuity to justify the present price.

According to Buffett, whether a stock is a good investment or not comes down to the cash it will produce. And the longer it takes for the company to produce the cash, the more it has to produce to justify its current share price.

With interest rates forecast to reach 4%, I think it’s reasonable to require a 7% return to justify the risk of investing in stocks. So let’s see how Croda, Diploma, and Rightmove shape up using Warren Buffett’s approach.

Valuing growth stocks

Croda shares have fallen by 33% since the beginning of the year. As a result, the company now has a market cap of £9.2bn.

At these prices, a 7% annual return implies £644m in cash each year starting immediately. Croda’s annual free cash flow is currently around £145m.

Diploma has a market cap of just under £3bn. The company’s share price is now around 30% lower than it was since the start of the year.

To justify an investment at these prices Diploma needs to generate £210m in free cash annually. Over the last 12 months, Diploma produced £107m in free cash.

Lastly, Rightmove shares trade at a price implying a market cap of just under £5bn. That’s following a 25% decline in the company’s share price since January.

A 7% annual return implies free cash generation of £350bn annually. Last year, Rightmove’s free cash flow came in at £191m.

2 growth stocks I’d buy today

I think that Croda shares look expensive at current prices. Diploma and Rightmove, on the other hand, look attractive to me.

A 7% average return implies 30% annual growth in free cash flow for Croda. That seems like a lot to me and I’m not prepared to invest on that basis. 

For Diploma and Rightmove, the equation looks much more favourable. Free cash flow growth of 10%-15% annually would see each company generate a return of over 7% on average.

In my view, this kind of growth might well be realistic. As a result, I’d be happy buying either Diploma or Rightmove shares at today’s prices for my portfolio.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Residential Secure Income REIT 

What it does: Residential Secure Income REIT invests in residential rental properties and shared ownership homes.

By Royston Wild. The economic outlook remains extremely uncertain right now. It’s why I think buying classic defensive stocks, like residential property rentals business Residential Secure Income REIT (LSE: RESI), is still an attractive idea. 

But don’t think of this UK share as simply a reliable share to own in difficult times. A widening supply and demand imbalance means that rental income at the real estate investment trust (REIT) looks set to soar. 

This explains why City analysts expect earnings to rise 20% this fiscal year (to September 2022). They predict an 8% bottom-line increase for next year, too. 

Data from Hamptons shows that rent growth in the UK remains super strong despite deteriorating economic conditions. Average rents rose 8.3% year on year in August. Last month’s increase was also the sixth largest yearly increase over the past decade. 

Rising interest rates pose a threat to Residential Secure Income’s shared ownership operations. However, I believe the prospect of a long-running shortage of rental homes still makes these shares a top buy for investors. 

Royston Wild does not own shares in Residential Secure Income REIT. 

Scottish Mortgage Investment Trust 

What it does: SMT is an investment manager primarily trading consumer, healthcare and technology stocks.

By Hamish Cassidy. The Scottish Mortgage share price has had a rough year so far, falling 32% since January. However, the stock has been steadily rising since June, and I think it’s set to climb higher this September. 

The company’s FY22 results reported £12.5bn in total assets. Exposure to the tech sector increased, now accounting for 25% of SMT’s portfolio. With tech giants such as Tesla and Nvidia gaining strong momentum last month, I think September looks hopeful.

Consumer spending has dropped due to the cost-of-living crisis. SMT has felt the effects of this, given that consumer discretionary stocks hold the majority of its portfolio at 33.5%. However, a strong turnaround in cash inflows from financing (increasing £1.2bn) suggests SMT can excel through the remainder of this year. 

I think the fund is very cheap at 880p. The stock looks like a great long-term addition to my September portfolio.

Hamish Cassidy owns shares in Scottish Mortgage Investment Trust.

Imperial Brands

What it does: Imperial Brands is a consumer goods company selling a range of cigarettes, fine cut and smokeless tobaccos and papers

By Paul Summers: Imperial Brands (LSE:IMB) has had a stellar year relative to most UK stocks. Not that this is all that surprising. Thanks to the addictive nature of what it sells, it was only a matter of time before even growth-focused investors saw it as a great option for parking their cash while the economic clouds pass.

I wonder if there could be more gains ahead. After all, the shares still look cheap at seven times forecast earnings. A 7.4% dividend yield is also enticing considering just how high inflation is expected to rise over the next few months.

There’s clearly still risk here. Cigarette volumes are in decline and regulators are never far away. We could also see some profit taking at some point. 

So long as I spread my cash around other sectors, however, I reckon Imperial will remain one of the best defensive shares around to buy.

Paul Summers has no position in Imperial Brands.

Diploma

What it does: Diploma is a distributor of industrial parts specialising in seals, controls, and healthcare equipment.

By Stephen Wright. In my view, Diploma (LSE:DPML) is one of the best UK stocks to buy at any time. The underlying business generates strong returns and has a significant advantage over its competitors.

One of the things I love about Diploma is the fact that it doesn’t have factories and expensive plants to maintain. This is because it distributes industrial components, rather than manufacturing them.

As a result, the business generates significant amounts of cash. 92% of the cash the business brings in becomes free cash available to the company.

This is an attractive business, but it can’t be easily emulated. Diploma’s scale and the size of its inventory give it an advantage over the competition.

Its customers know that Diploma can likely get parts to them quickly and more efficiently than anyone else. That’s what sets the business apart and means that its cash flows are — in my view — likely to prove durable.

Stephen Wright does not own shares in Diploma.

BT

What it does: BT is a UK-based multinational telecoms company operating in over 180 countries.

By Dylan Hood. Rising inflation and interest rates have weighed down on stock market valuations. BT (LSE:BT-A) shares have fallen 9% year to date, and over 20% in the past six months because of this. However, when I look at BT’s underlying business, not much has changed.

The group reported a small drop in profits in its Q1 FY23 results, however, in my opinion investors overreacted to this news. The firm is still on track with its Openreach roll out, which is now in over 7m homes, and its 5G network now covers over half the UK. In addition to this, the stock trades at a much lower price-to-earnings ratio (12 compared to 20) than its biggest competitor, Vodafone. BT’s asset-rich nature also means that it can act as a hedge against inflation.

Considering all of these factors, I think that BT shares looks like they could be a solid buy for my portfolio in September.

Dylan Hood does not own shares in BT

InterContinental Hotels Group

What it does: IHG is a hospitality company that owns a number of hotel brands including InterContinental, Holiday Inn, and Kimpton.

By Edward Sheldon, CFA. There are two main reasons I’ve chosen InterContinental Hotels Group (LSE: IHG) — a travel stock — as my top pick this month.

The first is that right now, we’re seeing a massive shift in the way consumers spend their money. Instead of buying goods, like they did during the pandemic, consumers are now spending their money on services. And the travel industry is benefitting. This is illustrated by IHG’s recent H1 results. For the six months to 30 June, revenue was up 53% year on year.

The second is that the company has pricing power due to its strong brands. The ability to raise prices should help it offset inflation.

The big risk to my investment thesis is that consumer spending slows down significantly due to the cost-of-living crisis. This could have a negative impact on sales.

However, with the shares trading at just 18 times next year’s earnings forecast, I think the risk/reward proposition here to buy into is quite attractive at present.

Edward Sheldon has no position in InterContinental Hotels Group.

Hikma Pharmaceuticals

What it does: Hikma Pharmaceuticals focuses on manufacturing and selling generic, branded, injectable, and in-licensed medicines.

By Zaven Boyrazian. Hikma Pharmaceuticals (LSE:HIK) is a world-leading generics pharmaceutical business. The firm focuses on recreating existing drugs and treatments that have come off-patent to improve availability and affordability for patients.

Lately, the stock has taken a bit of beating on fears of rising competition in the United States, causing profitability to suffer. In fact, over the last 12 months, the share price has fallen by almost 50%.

However, management is in the process of ramping up investments into its high-margin injectables business. And with its branded products continuing to deliver double-digit profit growth offsetting the recent losses, I feel investors may have overreacted.

Demand for healthcare isn’t likely to disappear any time soon. Even during a recession, when consumer spending is dropping, access to medicine is still a top priority for most patients. Therefore, I feel the recent drop in the share price presents my portfolio with a lucrative buying opportunity this month.

Zaven Boyrazian does not own shares in Hikma Pharmaceuticals.

Lloyds Banking Group

What it does: Lloyds is a FTSE 100 banking group and one of the UK’s largest mortgage lenders. 

By Charlie Keough. My top British stock for September is Lloyds (LSE: LLOY). The stock has been pushed down this year as inflationary pressures have weighed on investor sentiment. And trading for below 50p, I see real value in the Lloyds share price.  

Firstly, a hike in interest rates will benefit the business. With the Bank of England recently setting rates at 1.75%, the firm will be able to charge customers more when borrowing. With the Bank looking like they could hike rates further, this is good news for Lloyds. 

On top of this, the stock also offers a higher-than-average dividend yield when compared to the FTSE 100. 

Lloyds could suffer from a slowdown in the housing market. After surging in recent times, the market has hit the brakes. As a mortgage lender, this could spell trouble. 

However, the business has made moves to diversify such as through its rental venture, Citra Living. And with a strong dividend and long-term outlook, I’d buy some shares today.  

Charlie Keough does not own shares in Lloyds.

Persimmon

What it does: Persimmon is engaged in the homebuilding business. It operates under three different brands across the entire United Kingdom.

By Andrew Woods. The shares in Persimmon (LSE:PSN) have been volatile of late, down 31% in the last three months.

In a report for the six months to 30 June, the firm reiterated that it was targeting completions between 14,500 and 15,000 for 2022. In addition, it stated that there was still strong demand for houses, reporting a forward-sales rate of 90%.

However, first-half revenue and underlying operating profit declined by 8.2% and 8.8%, respectively.

There’s also the issue of rising interest rates. This is currently set at 1.75% in the UK and may climb higher. What this potentially means is that it becomes more expensive for customers to take out mortgages. This may lead to a slowdown in the housing market and that could be bad news for Persimmon.

Nevertheless, the company has total cash of £660m and debt of just £8.3m. This gives me hope that it could easily weather any storm that comes its way in the short term.

Andrew Woods has no position in Persimmon.

ITV

What it does: ITV makes and distributes content across television and digital platforms, as well as providing facilities for third party content creators.

By Christopher Ruane. I thought the interim results released by ITV (LSE: ITV) in July made for good reading. Total revenue grew 16% compared to the same period the prior year, while external revenue was up 8% and statutory earnings per share doubled. The company affirmed its commitment to an annual dividend of at least 5p per share, which means the prospective dividend yield is now around 7.8%.

Despite that, the ITV share price has continued to drift. It now sits 45% below where it was a year ago.

Long-term structural decline in television audiences remains a threat to both revenues and profits at the business. However, ITV is in growth mode and the digital world offers lots of room for expansion. It continues to generate substantial free cash flows and I expect that to continue in coming years. I would happily buy more ITV shares to my portfolio in September.

Christopher Ruane owns shares in ITV.

Unilever

What it does: Unilever is a fast-moving consumer goods conglomerate that produces beauty products, personal care, foods, and cleaning agents. Its brands include Lynx, Ben & Jerry’s, Dove, and many more.

By John Choong. Consumers are always going to need household products, even when prices are at an all-time high. This is why I think Unilever (LSE: ULVR) is a healthy choice for my portfolio. The demand inelasticity surrounding the majority of its products means that sales figures are unlikely to get hit too badly.

This was reflected in its most recent earnings report where CEO Alan Jope revised the company’s earnings guidance upwards. The FTSE 100 giant now expects underlying sales growth for 2022 to top 6.5%, which is excellent news given the decline in retail sales data. Additionally, the conglomerate’s geographical diversity should protect its top line from declining British and European sales figures.

Therefore, Unilever shares would serve my portfolio as a defensive play as the UK enters into a recession. Its price target of £40.81 doesn’t provide much of an upside. However, it brings me a little bit more security knowing that the likelihood of my money declining by double-digit percentages is low.

John Choong has no position in Unilever