All good investors take the time to review the holdings in their Stocks and Shares ISAs on a regular basis. For some companies, the original investment thesis might have changed, putting them on thin ice. On the flip side, most investors will have at least one stock that they can’t see going anywhere any time soon…
Associated British Foods
What it does: ABF is a highly diversified group with interests in food, agriculture, ingredients and retail.
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In my opinion, the economy is likely heading into a deep recession. Consequently, my Stocks and Shares ISA selections are turning increasingly defensive.
My focus is on identifying businesses where there is a high degree of visibility that the cash flows will be there even if the economic environment deteriorates. Associated British Foods (LSE: ABF) exhibits the kind of defensive qualities I am looking for in a business.
In the face of elevated inflation and a consumer squeeze, its retail operation, Primark, has shown resilience. Like for like sales for 2023 are expected to be 9% ahead of last year. It is also expecting a substantial improvement in margins as a result of lower material costs, together with a weakening of the US dollar.
Cost leadership is Primark’s unique proposition. That is not the case across other parts of the group. Surging raw sugar prices together with pricing action taken to recover higher input costs in its grocery business have contributed to growing revenues.
If a recession does lead to a sell-off in equities, then ABF will undoubtedly fall heavily too. But I still view it as the safest bet in my portfolio, given its unique diversified business model.
Andrew Mackie owns shares in Associated British Foods.
Microsoft
What it does: Microsoft develops and sells a wide range of software products and cloud-based computing services.
By Harshil Patel. Microsoft (NASDAQ:MSFT) was founded in 1975. Since then, it has embedded its software and services throughout organisations across the world.
As a technology business, it’s important not to rely on existing products forever. That’s why it’s good to see that Microsoft has a long history of innovation. It has also successfully entered new markets, allowing it to compete with other tech giants like Alphabet.
Bear in mind that technology moves fast, and to continue its success it would need to keep progressing. Not doing so carries considerable risk.
That said, I reckon this tech giant is one of the safest investments I own in my Stocks and Shares ISA. It’s a high-quality and established business with significant competitive advantages. Microsoft offers a cast-iron balance sheet, a double-digit return on capital employed and excellent profit margins.
In addition, it continues to innovate, providing ample opportunities for earnings growth. For instance, Microsoft has embedded artificial intelligence technology into much of its software. As the world of work changes, I expect Microsoft to continue being a key tool.
Harshil Patel owns shares in Microsoft.
Unilever
What it does: The consumer goods giant makes health, cleaning and beauty products used by 3.4bn people everyday in more than 190 countries.
By Harvey Jones. No stock is completely safe. Unilever (LSE:ULVR) certainly isn’t. Shares in the FTSE 100 stalwart stock have fallen 2.16% so far in 2023. Over 12 months, they’re up just 3.16%.
It trails the blue chip index as a whole, which grew 6.37% over the same period.
Unilever’s short-term underperformance doesn’t worry me. I brought it into my Stocks and Shares ISA this summer precisely because it has done poorly lately. It looks a bargain as a result.
Today, it trades at 18.56 times earnings. For years, I got used to seeing it trade closer to 24 times earnings. The yield is higher than usual at 3.6%.
I bought Unilever as a defensive stock, to underpin whizzier but riskier holdings in my portfolio. So far, it’s done the job.
In the longer run, I think it’s got bags of recovery potential. When the cost-of-living crisis eases, and consumers around the world feel richer, recent sluggish profit growth should pick up.
It may take time, but I’m happy to be patient. My Unilever shares still returned more than a best buy cash account last year, with the dividend included.
When markets recover, I expect it to come good. If markets fall, it’ll help give my portfolio a soft landing.
Harvey Jones owns shares in Unilever.
