Britain’s economy slowed by 0.2% in the second quarter of 2019, its first contraction since 2012. This caused more than the usual commotion within the financial district in London as it combined two dreaded words together – Brexit and recession.
Many commentators put the slowing growth down to Brexit with a lack of demand seen for both services and the construction side. Meanwhile, if we see a negative print for the third quarter of this year, this technically puts the UK into a recession. However, as the old Warren Buffett adage goes, “be fearful when others are greedy and greedy when others are fearful”. Therefore there is plenty of reason to look into the below stocks if the economy does take a nose-dive.
Play it safe
I like Hiscox (LSE:HSX) as my first choice. It’s an insurance provider, but operates in a slightly more niche area of the market – whilst it still provides the standard services, you can get insurance for kidnap and ransom demands, etc.
If we do see a recession, this tertiary/services sector of the FTSE 100 will likely hold up well due to the inelasticity of demand. Think of it this way – if the economy is hit hard, will the average Joe decide not to pay his contents insurance, or not to pay for his new designer shoes? Added to this is the unusual insurance which Hiscox provides, which differentiates it away from other mainstream insurance companies. Even with recent results giving it a share price dip, I wouldn’t be concerned.
I can see Whitbread (LSE:WTB) performing well if the domestic economy takes a hit. The largest and oversized brand for its financial performance is the ‘Premier Inn’ chain of hotels. This is a predominately UK franchise (although they are slowly moving abroad), which some may flag as a concern as it exposes them fully to weaker demand. However, I say the opposite.
History has shown us that during recessions, one of the first things the consumer cuts back on are luxuries. With the consumer having less disposable income, they still need a holiday but can’t afford to go abroad.
Therefore Premier Inn hotels could see boosted demand from UK clients looking to have a holiday without going international. Add to this that Whitbread has low-end brands such as ‘Beefeater’ and ‘Thyme’ restaurants, which again could see demand boosted as domestic clients seek cheaper alternatives to eating out.
A message in a bottle
My third pick is Coca Cola HBC (LSE:CCH) . It bottles most of the Coca-Cola for Europe, having picked up the rights back in 1969. Whilst this is the main business line, it does have other strings to its bow; it announced a couple of months ago that it would be helping to launch Costa Coffee into European markets next year.
The company fits the bill for a UK recession booster for many reasons. One of the key ones is its limited exposure to the UK. Whilst I listed this as a plus for Whitbread, it is not the case for most businesses. The fact that the company anchors itself from a US company, and trades throughout Europe, means a shock to the UK economy will not unduly affect its share price. Further, a recession that leads to a weaker pound will also help profits when repatriating European earnings back from Euros.
Jonathan Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.