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Top stocks for troubled times

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While rumours of Theresa May’s preference on the manner of Britain’s exit from the EU abounded long before it was confirmed on Tuesday, it’s understandable if investors are beginning to feel a little more nervous than they were when the FTSE 100 was breaking records a week ago. With this in mind, let’s look at three companies that could offer sanctuary for the risk-averse.

Safe havens

In my view, utility National Grid (LSE: NG) is the ultimate stock to own in difficult times. In July last year, the £35bn cap’s shares hit all-time highs as investors willingly paid up for a degree of certainty while the political elite engaged in in-fighting and deception. Since then, shares have lost their spark somewhat — dipping 18% and now change hands for 937p.

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Although the FTSE 100 constituent’s stock will never rocket in price, I would argue that capital appreciation isn’t the main reason for buying it. Instead, I would point to the stonking 4.7% yield on offer. Continually receiving and reinvesting these bi-annual payouts (either back into the company or elsewhere) can be an excellent strategy for generating wealth long term. Furthermore, price-to-earnings (P/E) ratios of 15.3 for 2017 and 14.6 for 2018 suggest that investors would be paying a fair price for National Grid at the current time.

With a portfolio bursting with brands that many consumers wouldn’t dream of giving up for cheaper alternatives, Unilever (LSE: UVLR) is another top defensive pick. Like bond proxy National Grid, shares in the Anglo-Dutch company rose strongly in the aftermath of June’s vote as investors sought safety in size and geographical diversification. This continued all the way into October, at which point market participants — sensing that politicians were continuing to dither over Brexit — became less cautious. A public spat between the consumer giant and Tesco over pricing didn’t help.

Based on the rough rule of thumb that a P/E of 15 indicates good value, Unilever has never been a ‘cheap’ share to buy. Then again, it’s precisely because of its defensive properties and ability to generate strong returns on capital year after year that its shares rarely get marked down. With a P/E of 19 for 2017, I’m inclined to think shares in the Marmite-maker aren’t only reasonably priced but could increase in value if and when the Trump’ bump’ ends and investors once again search for relative security. A yield of 3.4%, while not the highest on the FTSE 100, is arguably one of the safest.

Any selection of stocks for troubled times should really contain a pharmaceuticals giant. After all, regardless of what happens on an economic or political level, medicinal drugs will always been needed. While I’ve never been afraid to voice my concern over the company’s questionable level of dividend cover in recent times, I also think it would be wrong to suggest GlaxoSmithKline (LSE: GSK) is anything other than a safe bet for the long term.

On a P/E of 14 for 2017, shares in Glaxo look like good value compared to industry peers and — assuming earnings growth estimates can be realised and cover improved — come with a chunky 5.2% yield. A rise in the Brentford-based company’s share price could also be on the cards over the next year if the market warms to new CEO Emma Walmsley’s plans for its future.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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