UK inflation just hit 9%, sending plenty of stocks down the toilet as fears of a recession mount. While recession is an increasing possibility, there’s no guarantee it will actually come to pass. But let’s assume the worst. What stocks should I be looking to buy for my portfolio during a recession? Let’s explore.
UK Recession stocks to buy
Throughout history, there has been a recurring theme of which some industries outperform the market during periods of economic catastrophe. And near the top of this list is consumer staples. That’s not too surprising, given everyone still needs to eat and drink, even if prices are high. And it’s why Britvic (LSE:BVIC) is first on my recession stocks to buy list.
The beverage company’s products can be found in almost every supermarket under 37 top-rated brands, including Robinsons, J2O, and Teisseire. It’s also responsible for the distribution of Pepsi products.
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When consumers start looking to cut spending, branded products are usually high on the list of sacrifices. Yet looking at Brtivic’s latest results, that doesn’t seem to be happening. Over the last six months, revenue shot up by 18.5% on a constant currency basis. And with pandemic-related costs evaporating, the bottom line has surged by 48.7%. So it’s hardly surprising to hear that management has just announced a £75m share buyback programme.
As inflation climbs higher, Britvic’s immunity to its adverse effects may begin to weaken. In such a scenario, passing on the rise of raw material costs to consumers will be challenging. In other words, profit margins may shrink depending on the severity of the economic downturn many investors are fearing.
But with a track record of maintaining popularity among consumers during market downturns, I am confident Britvic is one of the best recession stocks to add to my portfolio today.
Another leader in consumer staples
Unilever (LSE:ULVR) is another example of a business with a vast product portfolio. Just like Britvic, the firm’s brands, such as Ben & Jerry’s ice creams, Dove shampoo, and Hellmann’s mayonnaise, can be found in almost every British supermarket. And despite raising prices to maintain profit margins, demand for Unilever’s products continues to remain steady.
Looking at the latest trading update, underlying volume growth has slowed by 1%. That does indicate fewer of the firm’s items are making it into the shopping basket. But the total revenue is still up 11.8%, courtesy of the aforementioned price increases.
Subsequently, management has maintained dividends while executing the first €750m chunk of its previously-announced €3bn share buyback programme. To me, that’s a strong sign of confidence coming from the leadership team.
Having said that, the falling product volumes could indicate Unilever is exhausting its pricing power. And management expects margins to suffer slightly in the second half of 2022, due to the volatility of raw material products.
Needless to say, that’s not a great sign. But in the long term, Unilever expects margins to make a full recovery. Therefore, I feel this is another fine addition to my recession stocks to ‘buy now’ list.
