Most Stocks and Shares ISA investors are having a solid 2025 so far, despite heightened volatility. That’s because the FTSE 100 and S&P 500 are up 12.6% and 9.6%, respectively.
However, things could get bumpier from here. In the UK, we have sticky inflation, anaemic growth, and sky-high government borrowing. If taxes go up in the autumn, which I think is increasingly likely, then a recession could follow soon after.
Consequently, investors might start looking for stocks that could do well in a recession. Here are two that I think are worth exploring further.
Footsie utility giant
The most obvious defensive pick in the FTSE 100 is probably National Grid (LSE:NG.). It owns and runs the infrastructure — pylons, power lines, and substations — that moves electricity around the UK and parts of Northeast America.
Demand for power doesn’t collapse during economic downturns. Moreover, National Grid is a regulated utility. That means the UK energy regulator sets how much profit the utility can earn, which results in incredibly reliable cash flows.
These support regular dividend payments. Right now, the forecast dividend yield is 4.8%.
The main risk here is the company’s balance sheet. In March, net debt stood at a whopping £41.3bn. With eye-watering investments being made to decarbonise the grid, there’s no guarantee that dividend growth will prove durable long term.
Nevertheless, with National Grid’s reputation as the quintessential safe-haven stock, I would expect it to do well during a recession.
Small-cap wildcard
Given that National Grid is a somewhat predictable pick, I’ll also highlight Begbies Traynor (LSE:BEG).
This AIM-listed company assists struggling businesses with restructuring, administration, liquidation, and turnaround support. It’s also one of the leading property auction houses by volume.
Every quarter, Begbies Traynor publishes its Red Flag Alert report, offering a snapshot of the financial health of UK businesses. It has made for grim reading for quite some time.
The latest Q2 research shows that 21% more businesses were in ‘critical’ financial distress than the year before.
Financial distress has intensified over the past twelve months in every corner of the economy…With no end in sight to the current economic malaise, I fear the financial burdens companies are enduring at present are simply too high for many not to avoid collapse.
Julie Palmer, Partner at Begbies Traynor
Last year, revenue increased 12% to £154m, with adjusted EBITDA growth of 11% (£31.7m). The dividend was hiked 8%, the eighth consecutive year of increasing payouts.
The forward dividend yield of 3.9% is well covered by prospective earnings.
Now, the company does face a lot of competition in a highly fragmented market. Also, a spike in insolvencies is hardly a long-term trend, so it will be important to keep broadening its range of advisory services, as well as grow through acquisitions.
However, earnings are forecast to rise strongly this year, putting the stock on a reasonable 10.8 times forward earnings.
Given the economic challenges, the company’s services are likely to remain in high demand for some time. Therefore, I think this is another stock that might do well during a recession.
