Nobody knows what will happen next to the economy. But there are mounting signs of a recession. The Bank of England warned last week that the UK will move into a recession this year. That could be bad news for many businesses. It has added urgency for me to buy some recession stocks that I think could do well in a downturn.
I am considering three such recession stocks to buy now for my portfolio. Here they are.
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The company Unilever (LSE: ULVR) is behind successful brands such as Dove and Marmite. With inflationary pressures expected to add billions of pounds in costs for the company this year, why do I see it as a recession stock?
The answer lies in that collection of premium brands. They give Unilever pricing power, allowing it to raise selling prices. That was demonstrated in the first quarter. Sales volumes slid by 1% compared to the same quarter last year. But due to an average 8.3% selling price increase, the company’s underlying sales growth came in at 7.3%.
That might not be enough to save the company’s profit margins from shrinking. It forecasts input cost inflation of around £2.3bn in the second half. But over time, Unilever’s pricing power should allow it to do well even in a recessionary environment. The Unilever share price is down 14% over the past year. I see that as an attractive buying opportunity for my portfolio.
In a recession, millions of consumers tighten their belts. That can increase the attention they pay to prices.
I think that could translate into growth opportunities at recession stocks including discount retailer B&M (LSE: BME). Its most recent quarterly trading results actually showed one-year like-for-like sales revenue in the UK B&M business sliding 6.2% compared to the same period in the prior year. But I think that reflects the strong performance seen the year before. B&M remains well ahead of where it was before the pandemic. Over two years, revenues in the UK business grew 14%, like-for-like.
B&M remains in growth mode, adding stores under both the B&M and Heron Foods names as well as in its French business. Inflation is a particular risk to profits for discount retailers, as it can be difficult to pass on higher prices to cost-conscious shoppers. But this seasoned discount retailer is among the recession stocks I would consider adding to my portfolio now as I expect it to trade strongly even as the economy worsens.
Recession stocks with resilient demand
While a recession may hurt customer demand for many products and services, one area I expect to maintain robust sales is tobacco. The addictive nature of the product means that demand tends to be maintained even when customers have less disposable income than before.
In the long term, fewer cigarette smokers could translate to falling revenues and profits. But I see tobacco businesses like British American Tobacco as attractive recession stocks to hold in my portfolio for the next few years.
The business is highly cash generative and currently British American yields 6.3%. The company has raised dividends annually for over two decades and is buying back shares. That speaks to the company’s strong financial outlook. I would happily buy more British American shares for my portfolio today.