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Fear a recession? Here are the stocks I think might thrive

I don’t know about you but I’m struggling to find a reason for thinking that the UK economy will simply snap back to life once the coronovirus threat subsides. Despite massive financial stimulus on the government’s part, the sheer speed at which recent events have changed our behaviour will surely leave a big mark. 

This episode has cut fast and deep with investors too, a whole generation of whom have never witnessed markets bleed to this extent before.

That’s not to say that all stocks will perform poorly during the most difficult times. Here are some that might do better than most.

Bargain hunters and sinners

Of all the sectors most impacted by the outbreak, retailers feature near the top. With all but essential shops shut and some online operations being stood down (e.g., Next), it’s going to be a hard few months for companies of all sizes. Even when the lockdown lifts, shoppers will surely be more careful with their cash than ever before. 

One group that tends to do well during recessionary times, however, are discount stores. FTSE 250 firm B&M European Value Retail would be a good example. I also suspect that Primark-owner and top-tier member Associated British Foods will remain popular.

The outlook for other sectors is unclear. The postponement of huge sporting events such as Euro 2020 and the Olympics, for example, will have a huge impact on betting firms in the near term but it may also dissuade some who like the occasional flutter from doing so during the nailed-on recession. For this reason, I suspect gambling firms might still be a risky bet going forward.

Other sin stocks, such as tobacco firm Imperial Brands, could fare better. Aside from their addictive nature, smokers may regard their products as affordable ‘treats’ during stressful times. Despite pubs and clubs being closed, firms such as Diageo may be another beneficiary as more of us drink at home.

Steady stocks

Of course, there are less controversial stocks that should offer stability regardless of what the economy is doing. Within this category, you might include phamaceuticals, waste management firms, and funeral services. As such, businesses like GlaxoSmithKline, Biffa, and Dignity should all prove resilient.

Having already benefited from panic-buying as the coronavirus outbreak worsened, supermarkets should be something of a safe haven too. My preference in this space would be Tesco, for its dominant market share.

Given the UK’s devotion to our furry friends, those in the pet space could also be worth a look. Earlier this week, FTSE 250 firm Pets at Home stated that it would keep its stores, website, and veterinary practices open for owners to pick up “essential products and obtain emergency health care, underlining how demand for these things won’t suddenly disappear. Veterinary services provider CVS Group is another option.

A word of caution

While most or all of the above should do better than most in troubled times, it’s worth mentioning that this will not necessarily translate into big share price gains. In reality, it may simply be that their value falls less than others.

For this reason, it’s worth remembering that all but the most cautious of us should still consider quality growth stocks if we plan on staying in the market for many years to come.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK owns shares of B&M European Value. The Motley Fool UK has recommended Associated British Foods, Diageo, Imperial Brands, and Tesco. 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.