A potential stock market crash is looming. Inflation continues to rise, a recession is imminent, and the pound has hit record lows against the dollar.
These conditions can cause markets to be more volatile than usual. It can even result in a crash, which occurs when a major exchange falls at least 10% in a single trading day.
On the surface, a stock market crash might seem bad news, but it’s important to remember markets are cyclical and will always move up and down. That’s why I’m viewing this as an opportunity for me to add stocks to my portfolio at a lower price.
I’m interested in adding defensive stocks to my portfolio and shares in companies that can capitalise on high energy prices.
Let’s take a look at two of these stocks.
On the defensive
Defensive stocks are well-established companies in industries such as consumer staples that provide consistent earnings and stable returns, regardless of economic conditions.
One company I think fits this description is Unilever (LSE:ULVR). Its extensive portfolio of brands and global business means that it has a regular customer base of millions of people. Regardless of economic conditions, demand for the likes of household cleaning products and personal hygiene items will continue to be consistent.
The stock has performed well recently and is up 16% in the last six months.
It is logical to assume that some consumers may swap branded goods for cheaper alternatives as the cost-of-living rises. This switch may impact Unilever’s growth in the short term.
Nonetheless, brand loyalty for Unilever’s products such as Marmite, Persil and Dove is strong. I believe that consumers will stick with these much-loved brands or, even if they make the switch briefly, will return to purchasing these items in the long run.
Moving forward with renewables
The second stock I think will perform well in the current economic climate is Greencoat UK Wind (LSE:UKW). Greencoat operates 45 wind farms across the country that generate clean electricity for UK households.
In the past year, the stock is up over 12%. In the same time period, the FTSE 250 is down 26%.
The company announced in its half-year results that it generated net cash of £328m and is issuing a dividend of 3.86p a share. These strong results are likely a result of increasing demand for renewable energy sources given the sky-high gas prices.
It’s important to note that maintaining wind turbines is not a cheap business. As we become more prone to extreme weather events, Greencoat could see costs increase as it tries to keep current turbines working.
I still think Greencoat is in a strong position to capitalise on the shift from fossil fuels to renewables. The rising and sustainable dividend makes it a good income stock for my portfolio.
