3 of the best shares to buy for the recession

Things are looking bleak for the UK economy. Paul Summers picks out three shares to buy for the looming recession.

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Yesterday’s headlines were pretty dire. According to the Bank of England, the UK economy is set to face a protracted downturn for 15 months. So which might be some of the best stocks for me to buy for protecting my capital against the looming recession?

Always needed

Companies that provide basic necessities like healthcare will always have demand, even during an economic downturn. Consequently, my first pick is GSK (LSE: GSK).

As a sign of how resilient it is, GSK recently beat analyst expectations for Q2, thanks to very healthy sales of its Shingrix shingles vaccines. Consequently, it also raised its targets for revenue and profit for 2022.

Any potential downsides? Well, having recently separated itself from its lucrative consumer healthcare business (now known as Haleon), GSK is a pure play on biotech. This means it needs to keep its pipeline of treatments moving along. That requires a lot of money. Many promising candidates won’t make the grade either.

Dividend payments will also be lower going forward. GSK is expected to pay out 45p in 2023. That’s a yield of 2.7%, as I type. Not bad, but not what it once was. On the flip side, a price-to-earnings (P/E) ratio of 13 feels like great value.

I doubt the share price will shoot the lights out over the next year but that’s not the point. The priority here is capital preservation and I’d be happy to buy today.

Pet power

The rise in pet ownership over the pandemic has been a boon to those providing products and services to owners. Therefore, my next pick is Pets at Home (LSE: PETS)

Isn’t buying any retailer in this environment risky? Quite possibly. Sadly, some people may be forced to give up their furry (or not so furry) companions due to the costs involved.

Even so, the gradual humanisation of pets over recent decades makes me confident that most people won’t even consider this an option. I also like how Pets at Home has its fingers in many pies. In addition to selling the food and toys customers need, it offers grooming and veterinary services. Like healthcare for humans, the latter isn’t a discretionary spend – it must happen.

Down almost 30% in 2022 and on a P/E of 16, the shares look fairly valued to me. A forecast dividend yield of 3.7% means I’m being paid to be patient too.

Again, I’d buy Pets at Home shares as things stand.

Safe storage

Recession or not, companies will still need sites to store their goods. So my final pick is Urban Logistics (LSE: SHED).

Urban invests in properties used for housing and distributing essential thingsa market “where demand is high and supply is low“. Tenants include Boots, DHL, Sainsbury’s and the NHS.

One particular attraction here is the dividend stream. As a Real Estate Investment Trust (REIT), this £900m-cap business is required by law to return 90% of property income profits to shareholders each year. Urban currently has a dividend yield of 4.2%.

Naturally, these positives haven’t been ignored by the market. Shares in Urban Logistics already trade at a pretty steep 23 times earnings.

Considering the diversification it would bring to my portfolio (I don’t currently hold any REITs), I think the benefits outweigh the drawbacks.

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.

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