Fresh reams of data released today underline how bad things are becoming for the global economy. Chinese Purchasing Managers’ Index (PMI) numbers showed the services sector is still in deep contraction. Equivalent gauges for major eurozone economies and the UK, meanwhile, slumped to record lows in March. US nonfarm payrolls data, meanwhile, showed a colossal 701,000 drop last month, the first fall for a decade.
A painful economic downturn is pretty much nailed on, then. And so stock investors need to start thinking seriously about how to protect their investment portfolios.
Brilliant FTSE 100 growth stocks
One stock I recently identified as a top safe haven in these difficult times is Diageo. Two FTSE 100 stocks that it shares an important quality with are Reckitt Benckiser Group (LSE: RB) and Unilever (LSE: ULVR). That quality is immense brand power. They are also, therefore, top buys for these troubled times.
Unlike the drinks giant, these particular blue chips aren’t ready to ride the leap in alcohol sales that accompany recessions. However, their products command the same sort of customer loyalty as the premium beverages that Diageo’s do. And this is a weapon that cannot be underestimated when broader consumer spending levels take a whack.
Reckitt Benckiser’s products include Durex, Dettol, and Gaviscon, the world’s number one condom, antiseptic, and indigestion product brands respectively. Unilever, meanwhile, is home to a dozen brands which generate annual sales of €1bn or more, including mega labels like Dove soap, Magnum ice cream and Persil washing detergent.
Shoppers will always find a way of stretching their pennies in order to buy these trusted, quality goods. This enables earnings to keep growing whatever macroeconomic trouble is raging in the background.
Buy with peace of mind
Unilever and Reckitt Benckiser have another formidable tool in their arsenal: diversification. Firstly, both Footsie firms have enormous geographical footprints which enable them to absorb particularly difficult conditions in one or two regions.
It is estimated that some 2.5bn people in 200 countries use Unilever’s products. Reckitt Benckiser, meanwhile, sells in excess of 20m items each and every day across some 60 nations.
Another way that these fast-moving consumer goods (or FMCG) manufacturers are brilliantly diversified is by product type. Even if one sub-segment of their business dips, this is likely to make only a minor dent at group level. What’s more, many of their items can be found all across the home, and a great number of these – whether it be shampoo, bleach, shower gel, or headache tablets – can be considered essential whatever the weather.
No wonder City analysts reckon Unilever’s profits will still rise 3% in 2020. Reckitt Benckiser’s expected to record a rare 16% annual reversal, though this reflects the near-term problems at its Mead Johnson baby formula arm. The number crunchers indeed expect the business to return to bottom-line growth in 2021. And I for one expect both firms’ earnings to keep growing thereafter thanks to their top-quality product ranges and immense global appeal.
