4 recession stocks that I’d buy to protect myself

Jon Smith talks through some of the recession stocks he has on his watchlist, ready to go if the economy nosedives.

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.

Burst your bubble thumbtack and balloon background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

sdf

Recession stocks are ones that are defensive in nature and tend to outperform the stock market during times of distress. This isn’t to say that they might soar during a downturn. But if the FTSE 100 fell by 20%, recession stocks might only fall by 10%. To be clear, we aren’t currently in a recession. Yet with some forecasting the UK to enter one at the end of the year, here are some stocks that I’ve got on my watchlist should things start to turn sour.

Looking for necessities

It’s tough to predict ahead of time what will cause a recession. However, as we stand I imagine it would be due to high commodity prices and high inflation. This cost of living squeeze could cause spending to dry up and GDP to tumble lower.

With that in mind, I want to avoid stocks that are reliant on consumer discretionary spending. In other words, I want to buy recession stocks that are consumer essentials. I think that Tesco and J Sainsbury are two good examples. These two supermarkets have a strong market share. Even if we do see a slump in the economy, people still need to buy milk and bread.

I also like these two firms as they have cheaper own brand options, for those really feeling the pinch. In comparison to some more high end options such as Ocado, I think Tesco and J Sainsbury should perform better based on having a wider consumer base.

Recession stocks from the utility sector

Aside from supermarkets, I can also find recession stocks from the utility space. National Grid and Severn Trent are two FTSE 100 names I like. National Grid focuses on electricity and gas provision. Severn Trent is a water company.

In both examples, the provision of these services is a necessity. Regardless of whether this is direct to consumer or more wholesale supply, I don’t think either business should be materially impacted by a potential recession. There might be some risk of consumers reducing usage of utilities. But fundamentally, demand for gas or water won’t be going away anytime soon.

The added benefit of utility stocks is that historically the sector has offered generous dividends. Severn Trent has a yield of 3.5%, with National Grid at 4.3%. These might not be the highest in the index, but certainly are an added benefit to me for income during a difficult period.

My long-term investment plan

I have all of the above recession stocks on my watchlist, ready to go if things turn sour. There are two key points that I need to remember. Firstly, if I do buy these stocks, it doesn’t mean I’ll sell my existing portfolio. Secondly, I won’t hold off investing in growth stocks now just because of the potential for a recession. Both of these points speak to my long-term time horizon for investing. History shows that recessions (and market slumps) don’t last forever, and that the trend for the market is ultimately higher!

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.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Ocado Group, Sainsbury (J), 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

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

The FTSE 100 is on fire! Yet these 2 stocks still look cheap to me

Despite the FTSE 100 hitting record highs, there’s no shortage of undervalued opportunities across the index, says Ben McPoland.

Read more »

Female student sitting at the steps and using laptop
Investing Articles

Greggs shares: an outstanding bargain after crashing nearly 40%?

Shares of one-time market darling Greggs have been in foul form recently. But is this a once-in-a-blue-moon opportunity for our…

Read more »

Close-up of children holding a planet at the beach
Investing Articles

This FTSE 100 stock’s suddenly become the highest-yielder on the index!

The league table of FTSE 100 (INDEXFTSE:UKX) dividend stocks has a new number one. But our writer explains why there…

Read more »

Rear View Of Woman Holding Man Hand during travel in cappadocia
Investing Articles

Is this under-the-radar UK stock as cheap as its rooms?

Our writer’s been keeping an eye on a little-known UK stock that operates in a niche, but profitable, sector of…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

It’s a ‘Fabulous Friday’ for holders of these FTSE 100 shares!

Four members of the FTSE 100 (INDEXFTSE:UKX) are making their latest dividend payments today (11 July). Our writer takes a…

Read more »

Man riding the bus alone
Investing Articles

Check out this spectacular FTSE 250 stock

UK investors willing to look beyond the FTSE 100 can find some outstanding companies. Online advertising business Baltic Classifieds might…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

The JD Sports share price is down 18% in a year. And the stock’s only yielding 1.1%. Here’s what I’m doing…

With the JD Sports share price struggling and a tiny dividend on offer, there doesn’t appear to me much going…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

How long would it take an owner of Legal & General shares to get their money back in passive income?

Our writer looks at the passive income potential of Legal & General, one of the highest-yielding shares on the FTSE…

Read more »