Fear a recession? Here are the stocks I think might thrive

The UK economy faces a very tricky period. Paul Summers gives his ideas on which stocks may fare better than most as consumers tighten their belts.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I don’t know about you but I’m struggling to find a reason for thinking that the UK economy will simply snap back to life once the coronovirus threat subsides. Despite massive financial stimulus on the government’s part, the sheer speed at which recent events have changed our behaviour will surely leave a big mark. 

This episode has cut fast and deep with investors too, a whole generation of whom have never witnessed markets bleed to this extent before.

That’s not to say that all stocks will perform poorly during the most difficult times. Here are some that might do better than most.

Bargain hunters and sinners

Of all the sectors most impacted by the outbreak, retailers feature near the top. With all but essential shops shut and some online operations being stood down (e.g., Next), it’s going to be a hard few months for companies of all sizes. Even when the lockdown lifts, shoppers will surely be more careful with their cash than ever before. 

One group that tends to do well during recessionary times, however, are discount stores. FTSE 250 firm B&M European Value Retail would be a good example. I also suspect that Primark-owner and top-tier member Associated British Foods will remain popular.

The outlook for other sectors is unclear. The postponement of huge sporting events such as Euro 2020 and the Olympics, for example, will have a huge impact on betting firms in the near term but it may also dissuade some who like the occasional flutter from doing so during the nailed-on recession. For this reason, I suspect gambling firms might still be a risky bet going forward.

Other sin stocks, such as tobacco firm Imperial Brands, could fare better. Aside from their addictive nature, smokers may regard their products as affordable ‘treats’ during stressful times. Despite pubs and clubs being closed, firms such as Diageo may be another beneficiary as more of us drink at home.

Steady stocks

Of course, there are less controversial stocks that should offer stability regardless of what the economy is doing. Within this category, you might include phamaceuticals, waste management firms, and funeral services. As such, businesses like GlaxoSmithKline, Biffa, and Dignity should all prove resilient.

Having already benefited from panic-buying as the coronavirus outbreak worsened, supermarkets should be something of a safe haven too. My preference in this space would be Tesco, for its dominant market share.

Given the UK’s devotion to our furry friends, those in the pet space could also be worth a look. Earlier this week, FTSE 250 firm Pets at Home stated that it would keep its stores, website, and veterinary practices open for owners to pick up “essential products and obtain emergency health care, underlining how demand for these things won’t suddenly disappear. Veterinary services provider CVS Group is another option.

A word of caution

While most or all of the above should do better than most in troubled times, it’s worth mentioning that this will not necessarily translate into big share price gains. In reality, it may simply be that their value falls less than others.

For this reason, it’s worth remembering that all but the most cautious of us should still consider quality growth stocks if we plan on staying in the market for many years to come.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK owns shares of B&M European Value. The Motley Fool UK has recommended Associated British Foods, Diageo, Imperial Brands, and Tesco. 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to…

Read more »