I’m looking at defensive stocks on the FTSE 100 and FTSE 250. Defensive stocks are ones that traditionally demonstrate relatively stable performances, regardless of the state of the economy. And, right now, that’s important for me, given the impending recession in the UK.
Defensive stocks can also be referred to as non-cyclical, as they’re expected to provide steadier dividends and possess a more stable share price. This is often because these firms produce necessities, such as utilities, healthcare, or consumer staples.
Today, I’m looking at two FTSE stalwarts that operate in the fast-moving consumer goods sector — Unilever (LSE:ULVR) and Haleon (LSE:HLN).
I appreciate the latter is new to the index, and therefore not strictly a stalwart. However, it had existed as GlaxoSmithKline’s consumer healthcare segment for decades.
Passing costs to customers
Strong brands provide companies with the ability to maintain margins by putting up prices when costs increase. That’s because, even when times are tough, customers still tend to stick with the brands they know and love.
Unilever has an hugely impressive portfolio of international brands. There are more than 400 household names under its umbrella, including 13 brands that deliver more than £1bn in revenue every year.
Some of Unilever’s top brands include:
| Product | Brand strength |
| Ben & Jerrry’s | Among the world’s most-loved ice cream brands |
| Cif | Universally-known cleaning product |
| Domestos | Internationally-known cleaning product |
| Dove | Widely popular and affordable personal care |
| Lifebuoy | A soap brand sold around the world |
In H1, Unilever lifted its prices by 9.8% compared to the same period of 2021, but only saw a 1.6% contraction in sales volume. That’s pricing power!
Meanwhile, Haleon owns brands such as Sensodyne, Advil, and Voltaren, all of which are household brands. Given that these products sit in consumer healthcare, Haleon’s pricing power is arguably even greater than that of Unilever. People put their health first.
Multinationals
Unilever and Haleon don’t just operate in the UK. And that’s a positive, especially as the UK economy slows down. Both these companies are exposed to high-growth markets and, importantly, are earning foreign currency when the pound is weak.
The pound is currently around 13% weaker than it was against the dollar a year ago. And that will serve to inflate the value of USD sales when converted back into pounds.
Haleon serves more than 100 markets worldwide and has an established presence in all key channels. The firm also has strong partnerships with mass retail and pharmacy chains in the US.
Meanwhile, Unilever sells in 190 countries and claims that 3.4bn people use its products every day. It’s also highly exposed to growth markets with 58% of its income coming from emerging economies. Around 17% of its revenues are derived from the US.
Of course, they’re not guaranteed successes and Unilever has had its challenges of late, plus it faces the risk of a new leader at the helm when its CEO steps down late next year. And a risk for Haleon is linked to ongoing legislation around OTC drug Zantac, although the company strongly believes this shouldn’t be an issue for it.
Regardless of all that, I still see a robust recession-resistance at both of these businesses. I recently bought more of these stocks and I’d still buy more.
