When buying shares for my portfolio, FTSE index members often cross my radar. Simply being big and well-established is no guarantee of future success, of course. But I think that in a recession, being a longstanding company with experience of many past recessions can be helpful.
Take FTSE 100 member Antofagasta as an example. Falling copper prices are a threat to revenues and profits, something a recession might make worse. But the miner was founded in 1888. That means it has now experienced recessions in three different centuries. So while a slowdown threatens a company like Antofagasta, I think it is battle hardened.
Maybe that helps explain the difference in performance of some key FTSE indices over the past year, as economic storm clouds have gathered. While the FTSE 250 has fallen 20%, the index of 100 leading shares is actually up by 4%.
If I had a spare £1,500 to invest right now, I would split it evenly across a trio of FTSE 100 shares.
JD Sports
I own shares in retailer JD Sports (LSE: JD) but have been thinking of taking advantage of current weakness in the share price. It has fallen 44% over the past year.
Investors are nervous that new management may be unable to lead the business as well as its old leader could at a time when shoppers might spend less on shoes and clothes. But I think JD’s growth story remains strong. Its international footprint is large. That could help provide opportunities for future growth.
The valuation simply looks too cheap to me for a business of this quality. Currently, JD’s market capitalisation is under £6bn. But it made £655m in pre-tax profits last year. That makes it seem undervalued to me when considering the price-to-earnings (P/E) ratio.
British American Tobacco
One defensive sector that can do well even when the economy stutters is tobacco. Smoking is addictive.
That is why I would buy British American Tobacco (LSE: BATS) against the backdrop of weakening consumer spending power in some areas of the economy. The share price has put on over a quarter in the past year, so it is not the bargain today I think it was a year ago.
Despite that, I still think it is attractively priced. This quality company has some real strengths. Global reach, iconic brands and big distribution networks should all help it maintain strong revenues in coming years. One threat I see is a decline in cigarette smokers hurting sales. But I will hopefully be well-rewarded for owning British American Tobacco shares, with the dividend yield currently standing at 6%.
Legal & General
I would also add Legal & General to my portfolio.
The yield of this FTSE 100 share is even higher than British American Tobacco, at over 7%. It also trades on an attractive P/E ratio, in the single digits. With a strong brand and large installed customer base, I think Legal & General benefits from a simple but defensive business model. That could help it make profits in coming years and hopefully maintain its generous dividend.
A tightening economy could make some customers shop around, which is a risk to profit margins. But Legal & General is even older than Antofagasta. It has survived many recessions before and has experience of making money in difficult times.
