What are the best UK stocks to buy as a hedge against a recession? That’s a question getting asked more frequently these days as macroeconomic data doesn’t exactly paint the brightest future.
Across the pond in America, the yield curve has inverted, indicating a potential economic downturn. Meanwhile, here in the UK, the Office for National Statistics revealed economic growth is slowing faster than expected. And with energy bills on the verge of skyrocketing, a recession may soon be at the door.
As horrendous as that sounds, it’s not a foregone conclusion. But, assuming the doomsayers are accurate, what are the best UK stocks to buy during a recession to protect my portfolio? Let’s take a look.
Consumer staples to the rescue
Regardless of what the economy is doing, people still need to eat, drink, clean, and generally remain healthy. That’s why, historically, consumer staple companies are often some of the best-performing stocks to own during a recession.
With that in mind, Unilever (LSE:ULVR) looks like it could be an attractive buy for my portfolio today. The company boasts a massive brand portfolio, including Magnum ice cream, Hellmann’s mayonnaise, Dove shampoo, and Comfort detergent, to name just a few.
Even when the economy is tanking, these products are usually some of the last to get cut from the weekly shopping list. However, consumers may swap these premium brands for cheaper alternatives, depending on how tight household budgets become. That’s certainly a risk to consider, but with a management experienced in navigating through the turbulence of a recession, this UK stock remains on my buy list.
Another recession-proof stock to buy
Investing directly into a consumer staple company is one option. But another is to buy shares in popular retailers like Tesco (LSE:TSCO). The company is the largest supermarket chain in the UK, with over 4,000 stores. It’s almost twice as big as its nearest competitor. And with a focus on price over quality, the group remains the most popular shopping destination among British consumers for staple products.
Unlike Unilever, if people decide to swap a premium branded product for a cheaper alternative, the impact on Tesco is usually negligible. Why? Because the supermarket often sells both at similar profit margins.
Like all investments, there are risks to consider. Discount retailers like Aldi and Lidl don’t offer as wide a range of products, but the prices are significantly lower. And suppose consumers decide to change their shopping destination. In that case, a recession could result in the stock losing some of its market share.
The bottom line
Beating a recession with these UK stocks shouldn’t be too difficult, in my opinion. While they have their risks, both companies have tackled economic downturns before and continue to reward long-term investors with dividends. That’s why I think these could be some of the best shares to buy for my portfolio right now.
