Many UK shares have defensive qualities that make them good investments in a recession. In light of the recent IMF forecast that the British economy will contract by 0.6% this year, I’m eyeing up resilient stocks that can perform well in a tough economic climate.
At present, I’m waiting a little longer to see if the gloomy predictions are right. But, looking ahead, here are three FTSE 100 shares I’d buy to help protect my portfolio if the UK enters a recession.
AstraZeneca
I already own shares in pharmaceutical giant AstraZeneca (LSE:AZN). The biotech company’s currently the largest FTSE 100 constituent with a market cap of £179.3bn.
The healthcare sector is non-cyclical, buoyed by robust demand for medicines regardless of wider economic performance. Coupled with the long-term demographic tailwind of an aging population, I think AstraZeneca shares are an excellent investment when markets are choppy.
CEO Pascal Soriot has confirmed that the firm’s on track to deliver at least 15 new medicines this decade. With diverse strength across therapy areas including oncology, cardiovascular conditions, and respiratory illnesses, AstraZeneca’s future looks bright.
Waning sales of Covid vaccines are a risk for the AstraZeneca share price. Excluding Covid medicines, the business expects a double-digit revenue increase this year. However, this figure falls to a “a low-to-mid single-digit percentage” if they’re included.
Nonetheless, a promising pipeline suggests there’s considerable potential for share price growth, even as the world moves on from the pandemic.
Centrica
The Centrica (LSE:CNA) share price is rocketing today, lifted by news that its 2022 total operating profit trebled to £3.3bn.
Following excellent results, the British Gas owner announced it’ll extend its share buyback programme by £300m. This should continue to add value for shareholders as Centrica boosts its stake to 10% of all shares currently issued.
High energy prices could persist this year as the Russo-Ukrainian war continues. Sanctions on Russia are unlikely to be lifted anytime soon. This should continue to restrict oil and gas supply into the international markets, and Centrica stands to benefit.
The possibility of further government intervention beyond the 45% windfall tax on electricity generators is a key risk. No doubt the firm’s record profits will strengthen political pressure to take additional action.
Nonetheless, I think Centrica shares could outperform if geopolitical uncertainty continues to weigh on other areas of the stock market.
Diageo
Alcoholic drinks producer Diageo (LSE:DGE) is a Dividend Aristocrat with strong defensive credentials.
Currently, this FTSE 100 stock offers a 2.17% dividend yield. The company’s investment into premium brands has supported its margins despite the inflationary environment. Around 57% of the group’s sales come from these labels.
Diageo’s also expanding its share buyback programme. An additional £500m of capital will be returned to shareholders in 2023/24. What’s more, strong pricing power gives the firm a competitive advantage. This helps to protect the firm’s bottom line in difficult economic conditions.
One risk is the price-to-earnings ratio, which arguably looks lofty at 22.93. However, I still believe the Diageo share price is cheap. A premium product range warrants a premium valuation in my view. If a recession arrives, Diageo will be near the top of my list of shares to buy.
