Due to macroeconomic factors causing economic volatility, fears of a recession are looming large. I’m looking for the best FTSE stocks that could be recession-proof. One stock that I believe fits the bill is Greggs (LSE:GRG). Here’s why.
The UK’s favourite bakery chain
Greggs is the UK’s largest bakery chain, with close to 2,000 locations across high streets, retail parks, shopping centres, airports, and railway stations. It specialises in savoury products such as sandwiches, rolls, bakes, and sweet treats for those with a sweet tooth like me.
So what’s happening with Greggs shares currently? Well, as I write, they’re trading for 1,894p. At this time last year, the stock was trading for 2,892p, which is a 34% decline over a 12-month period.
Why I like Greggs shares
I always refer to the performance track record of a FTSE stock when considering them for my portfolio, although I am aware that past performance is not a guarantee of the future. Greggs’ recent half-year update for the six months ending July 2 made for good reading, in my opinion. Revenue, sales, profit, and earnings per share all increased compared to the same period last year. This is despite higher costs than before and the fact it had to raise prices. An interim dividend of 15p was also declared, the same as last year.
Next, Greggs possesses excellent brand recognition and pricing power. Through its profile and presence across the UK, it has become a staple for many, with its convenience, variety of products, and value for money too. In times of volatility, these aspects could serve it well, in my opinion. I believe this is shown by its recent trading update where it mentioned that despite increasing prices, it managed to perform well against tough economic conditions and headwinds.
Finally, Greggs shares would boost my passive income stream through dividend payments. At current levels, a dividend yield of just over 5% on offer is enticing. The FTSE 250 average is just under 2%. I am aware that dividends are never guaranteed, however. In times of economic volatility, dividends can be cancelled to conserve cash. If Greggs has to resort to this, I’d expect it to restart dividends as soon as possible.
FTSE stocks have risks
Despite my overall bullish stance on Greggs shares, I must note some bearish aspects to consider too. Firstly, the same macroeconomic factors that could cause a recession, would also have a material impact on Greggs performance and returns. Soaring inflation, the rising cost of materials, and the global supply chain crisis could all affect it. Rising costs could eat away at the profit margins that underpin growth and returns. Supply chain issues also affect operations and sales.
Next, the issues mentioned above have created a cost-of-living crisis. Although I believe Greggs has the brand and pricing power to overcome this, demand could be affected in the shorter term at the very least as consumers feel the pinch.
Conclusion
Overall I believe if a recession were to occur, and potentially another stock market dip, Greggs shares would be a great stock to have as part of my holdings for their defensive capability, brand power, strong balance sheet, as well as passive income opportunity. I would add the shares to my holdings.
