A painful global recession is just around the corner. It’s a scenario that many have been predicting for more than a couple of years now. But the coronavirus outbreak has unleashed a sledgehammer to the worldwide economy, a development that continues to weigh on FTSE 100 stocks. The index is down another 1% on Friday.
That’s not to say that share pickers need to sell everything and head for the hills. Oh no. By buying up some choice ‘recession-proof’ stocks, it’s possible to still protect the health of your investment portfolio and generate a decent return.
Drink it in
One share I’m very happy to own in these troubled times is Diageo (LSE: DGE). That’s even though the drinks giant published a disappointing assessment of the immediate impact of the coronavirus outbreak in late February.
The FTSE 100 firm said that, because of social distancing measures and travel restrictions introduced across its Asian markets, that it expected to endure a £225m to £325m hit to organic net sales in the current fiscal year (to June 2020). This would knock between £140m to £200m off annual organic operating profit, it added.
In better news, Diageo said that it expected sales in Greater China to gradually recover and return to normal levels in the current quarter. It added that consumption in other Asia Pacific markets should steadily pick up in this fourth quarter.
A reassuringly expensive FTSE 100 stock
Despite its recent travails however, Diageo is a stock I’m backing to thrive over what promises to be a tough couple of years. Alcohol sales famously grow during times of macroeconomic, geopolitical and social upheaval. And through its heavyweight labels like Smirnoff vodka, Captain Morgan rum and Guinness stout, the Footsie company is well placed to ride this phenomenon.
A report by financial information firm SageWorks following the 2008/09 banking crisis shows this perfectly. The report, seen at the time by CNN, said alcohol sales in the US leapt 8% in 2008. They rose 1% in 2009 and 9% in 2010 as well. This is even though annual employment fell more than 9% in the period. It’s clearly promising news for Diageo, a company which sources half of net sales from North America.
This is not an event isolated to the US, of course. Booze is a must-have product all over the world, and why Diageo said that it expects sales to have started growing again in Asia straight after lockdown measures were eased. Troubled economic times might mean people stop visiting bars, pubs and clubs as frequently. But supermarket and off-licence sales should still thrive as thrifty drinkers stay at home instead.
The FTSE 100 stock isn’t exactly cheap right now. At current prices it carries a forward P/E ratio of 19.6 times. But as a dependable lifeboat in troubled times, I think the drinks leviathan is worth every penny.
