When the news that we’re in a recession broke last week, I instantly started thinking of UK shares that might not be impacted as much as others and could be shrewd buys.
Two stocks I reckon investors should be taking a closer look at are Associated British Foods (LSE: ABF) and Premier Foods (LSE: PFD). Here’s why!
Associated British Foods
Associated British Foods is a multinational food production business. It is also the owner of the burgeoning Primark brand.
The shares are up 17% over a 12-month period. At this time last year, they were trading for 1,958p and they’re currently trading for 2,300p.
The business has been around for nearly a century. It has an excellent track record of growth, performance, investor returns, and crucially, navigating tough economic backdrops. However, I’m conscious that past performance is not a guarantee of the future.
Next, as the core of the business is food production and it possesses a great footprint and brand power, I reckon it has defensive traits. After all, everyone needs to eat. Plus, when you add into the mix the surging popularity of Primark and the revenue that adds, ABF is primed for continued growth and returns, in my view.
However, inflationary pressures are a worry. Rising costs could take a bite out of profit margins, which underpin returns and growth plans. Plus, consumers conscious of tighter budgets may turn to unbranded products as opposed to branded premium items.
The company’s valuation is attractive, on a price-to-earnings ratio of 17. Although not the cheapest, sometimes paying a fair price for a wonderful company is fine. Plus, a dividend yield of 2.6% would boost passive income. However, it’s worth noting that dividends are never guaranteed.
Premier Foods
Operating in the same sector, Premier Foods is a smaller operation but also possesses defensive traits and brand power.
Premier shares have been bucking the recent downward trend across the FTSE to perform well over a 12-month period. They’re up 26% during this time, from 111p at this time last year to current levels of 140p.
The similarities don’t stop there, as the risks are also similar. Continued rising costs could hurt its bottom line. In addition to this, the rise of supermarket disruptors such as Aldi and Lidl gaining market share and attracting customers with cheaper alternatives compared to branded products is an ongoing risk.
Moving on, the shares look decent value for money on a P/E ratio of 12. The passive income opportunity is minimal, with a dividend yield of just over 1%. However, during times of a recession many firms may cancel dividends due to an uncertain outlook. However, with Premier’s defensive operations, I can’t see this happening.
Economic headwinds shouldn’t hurt Premier Foods too much in my opinion. I think the shares, performance, and returns should climb once volatility subsides.
