Key data in recent weeks shows that economic conditions in are worsening in many regions as inflationary pressures rise. But I dont plan to stop investing in UK shares despite this threat. Here are two FTSE 100 stocks I think could thrive as times get tough.
A FTSE 100 share I already own
Investing in fast-moving consumer goods businesses can be risky as shopper spending budgets come under pressure. But I think Diageo (LSE: DGE) could perform well as economic conditions worsen again.
This is because sales of alcoholic products tend to rise when economic conditions slump. Sales of beer and liquor increase as joblessness leads to more people having more time on their hands.
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A premium pick
In fact Diageo’s huge investment in premium drinks in recent years could pay off as economic conditions deteriorate.
The business sells a wide range of blue riband products like Smirnoff vodka, Guinness stout and Captain Morgan rum. And it has invested heavily in its labels like its Johnnie Walker whisky brand to ride the premiumisation trend.
Scott Braun, chief marketing officer of alcohol retailer Drizly, told trade paper Craft Brewing Business that the premium drinks segment continued to grow during the early months of the pandemic when the world economy began to list.
Sales are soaring
Diageo’s financials for the second half of 2021 show that the premium segment has kept growing strongly despite the escalating cost of living crisis, too. It said that its ‘premium plus’ drinks were responsible for more than half of net sales growth between July and December.
Total net sales jumped 15.8% year-on-year in the period to £8bn.
The business faces threats in the form of rising beer ingredient costs. It’s a danger that Dutch beer giant Heineken for one has warned about in recent months. Drinkmakers like Diageo might have to swallow these increased expenses at the expense of margins.
However, the prospect of of spiking demand for its drinks is encouraging me to increase my stake in Diageo now.
A golden stock
There’s a case that precious metal prices don’t currently reflect the scale of inflationary pressure across the globe. I think they could have further to go and this is why I’d buy silver and gold stock Fresnillo (LSE: FRES) for my portfolio.
The Bank of England this week said that it now expects consumer price inflation to breach 10% later this year. This isn’t the first time Threadneedle Street has upgraded expectations and it might not be the last. In fact economists around the globe could continue hiking their predictions as supply chain problems roll on.
Gold prices — and by extension profits at Fresnillo — could take a hit if central banks keep rapidly hiking rates. Though on the other hand it’s possible that weak economic growth might limit their ability to tighten policy.
All things considered I think buying Fresnillo shares is a good idea. And I think the FTSE 100 company could be a great silver and gold stock for me to own as it also expands its operations across precious metals hotbeds of Mexico.
