2 stocks to double down on during a recession

The Chancellor recently confirmed that the UK is now in a recession. Here are two stocks that weathered the last economic downturn before powering higher.

| More on:

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.

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December

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.

Last week, the Chancellor announced that the UK is now in a recession. All companies will feel the impact of an economic downturn in some way. And stocks may continue to be volatile.

Yet it’s important to remember that the British economy has historically always bounced back from a downturn. With that in mind, here’s two stocks I’d double down on during a recession.

Affordable luxury

It’s pretty well established that people don’t give up their vices during a recession. Less money may be spent on restaurant dining, but consumers still purchase their favourite alcohol brands. These drinks become affordable luxuries, especially premium spirits.

So the first stock I’d double down on is drinks giant Diageo (LSE: DGE). Its portfolio of leading brands includes top-selling scotch Johnnie Walker, Baileys liqueur, and Casamigos, the premium tequila brand co-founded by George Clooney.

In its 2010 annual report (which covered the 2009 recession), Diageo posted net profit of £1.6bn on full-year revenue of £9.3bn. That was a 5% increase in revenue year on year, but net sales were 3% lower in the US and 2% lower in Europe. The outlook was very uncertain.

Fast-forward to this year, and Diageo recorded double-digit net sales growth across all world regions. Its fiscal 2022 full-year net sales grew 21% over the year before, reaching £15.5bn. Net profit was a very healthy £3.2bn.

Since the start of 2009, Diageo’s share price is up 297%, without including the growing dividends. That type of return will be hard to replicate, but I think patient shareholders like me could still be handsomely rewarded.

Indispensable data

Another stock that accelerated out of the last recession was Experian (LSE: EXPN). From being down 50% in October 2008, it has gone up a staggering 948%, excluding dividends. Why?

Well, the consumer data giant has an operating margin regularly above 20% and is very profitable. It forms a triopoly with two other companies within the credit reporting industry. And the firm has credit data on over 1bn people and tens of millions of businesses worldwide.

Its customers, such as banks and insurance firms, pay for this data in the form of credit reports and other add-on services.

During the last recession, the company reported that its data was in demand “across an ever-broadening range of markets”. This expansion continues today, with Experian recently reporting that it’s winning more clients in the energy and utility sectors. These companies increasingly need data to assess the impact energy price hikes are having on households.

Lenders need up-to-date credit information to adjust their lending criteria, especially during a recession. With 1.3bn updates to its databases every month, Experian has the vital consumer data that organisations need.

Risks

Of course, past performance is no guide to future returns. The demand for Diageo’s products could dry up (pardon the pun) if the forthcoming recession lasts a long time.

Meanwhile, the stock has a rich price-to-earnings (P/E) ratio of 27, which reflects investors’ high expectations of rising future earnings. Were this growth to stall unexpectedly, the stock could be re-rated and fall in price.

However, risks aside, I like the prospects for both. I’ll add to my positions in each of them during the recession.

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.

Ben McPoland has positions in Diageo and Experian. The Motley Fool UK has recommended Diageo and Experian. 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

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »