With the economic outlook getting gloomier, the Bank of England recently warned that a recession is expected this year. I have been thinking about how to make sure my portfolio is ready. Here are 10 recession shares I would consider buying now.
What are recession shares?
In general, my approach is to buy shares in great companies at attractive prices. I think that applies no matter what part of the economic cycle we are in. So I am not taking a different investment approach to my usual one. Instead, I am considering whether businesses I like have the sorts of defensive qualities that could help them do well in a recession.
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An example of such defensiveness is tobacco. Users tend to buy the product through thick and thin, even when money is tight. That can help support cash flows and dividends.
That is why I would consider buying high-yielders Imperial Brands and British American Tobacco for my portfolio. Long-term risks include declining cigarette use hurting revenues and profits. But I expect the businesses to see no severe impact on product demand from a recession.
Another classic defensive sector is retail. People need to eat, drink, clean and clothe themselves, even during a recession. Here I would go for three shares. Supermarket giant Tesco is the market leader and I think that gives it a competitive advantage, thanks to economies of scale.
Discounter B&M focuses on selling famous brands at cheap prices. That could be attractive to recession-hit shoppers who want to save money without trading down in quality.
Games Workshop has lost 36% of its value in a year. But its products offer affordable escapist fantasy, so I think demand could grow in a recession. Inflation is a risk to all three retailers, as it could eat into profit margins. But I expect revenues to stay strong and would happily add all three of these recession shares to my portfolio.
Self-storage has a business model that allows it to keep charging rent, partly because many customers have nowhere else to put their excess belongings. I expect that to remain in strong demand even during an economic downturn.
I own Safestore shares and would consider buying more, along with rival Big Yellow. Low barriers to entry could lead to more competition squeezing profit margins. But those two operators are well-established, with widely familiar brands that help attract customers.
Not only will retailers likely see robust demand in a recession, I expect consumer goods makers would too. So I would consider buying Unilever and Reckitt. Their global businesses and premium brand portfolios give them pricing power and help support dividends.
I would also consider adding meat specialist Cranswick to my portfolio. It has a proven growth model and has raised its dividend annually across three decades and multiple recessions. Dividends are not guaranteed and supply chain costs could hurt profits. But, hopefully, the business’s operational experience will help steer it through a deteriorating economic environment.
Recession shares to buy now
All 10 of these businesses have caught my eye. I would consider adding these recession shares to my portfolio today and holding them in the years to come.