I don’t want to add any more doom and gloom than is necessary for a cold and wet start to the year. Yet given the lacklustre start to 2024 for the stock market and the continued signs of a potential recession later this year, it does have me thinking. If I wanted to build a watchlist of the best stocks to buy to protect myself, what should I put on it?
Recession flags
Let’s consider why the UK could fall into a recession this year. The latest data from December showed that for Q3 2023, the economy contracted by 0.1%. In theory, if the data for Q4 turns out to be negative as well, we’re already in a recession. This is marked by two consecutive quarters of negative GDP economic growth.
Even if we escape it for the moment, I’m not observing any signs that growth has suddenly picked up. In fact, in a trading update for the holiday trading period from retailer JD Sports, it noted that “the peak trading season…was softer…reflecting more cautious consumer spending”.
If consumers continue to cut back on spending, this should act to reduce GDP growth, potentially causing a recession later this year.
Everyday essentials
To start with, if the recession is likely to come from lower consumer spending, I want to avoid retailers and luxury brands. Rather, I want to focus on products and services sold that we all have to purchase.
A good example is Unilever (LSE:ULVR). The firm is home to well-known brands ranging from Colman’s mustard to Domestos bleach. It has 80 brands that are stocked in most supermarkets. The share price is down 9% over the past year.
Apart from being well-known, most of the products are also daily essentials. Sure, I might not want mustard with my dinner, but I’ll definitely need bleach to clean with. The price point and product use for Unilever’s items makes me believe that it’s a good defensive purchase ahead of a potential recession.
As a risk, Unilever announced recently that it’s looking to sell off some individual product lines going forward. This could reshape what the company looks like, potentially for the worse.
Keeping the lights on
Another sector going on my watchlist is utilities. For example, Centrica (LSE:CNA). The British electricity and gas provider is doing exceptionally well at the moment. Over the past year, the share price is up 64%.
In part thanks to rising energy prices, profitability over the past couple of years has increased significantly. In 2022 it was promoted from the FTSE 250 to the FTSE 100, where it currently sits.
The fact that the business has strong financials is definitely a positive ahead of any potential economic storm. It’ll help Centrica to weather it better than others that have weak balance sheets.
Yet the other factor is that even when times get tough, consumers and businesses will still pay their energy bills. This should help to keep revenue steady over this year and beyond. Of course, the risk of defaults and bad debts from clients if things do get really bad is a point to consider.
Both stocks are on my watchlist, and if things do start to look more uncertain I’ll consider buying both.
The post What are the best stocks to buy for a looming UK recession? appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Here’s why the Unilever share price fell 9% in 2023?
Should I start 2024 by selling my underperforming Unilever shares?
Should these 2 FTSE 100 shares be my first buys of 2024?
Below 50p, is the Lloyds share price the FTSE 100 bargain of the year?
2 cheap shares I think could be bargain buys before 2024!
Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
