The ‘R’ word has been whispered by many in recent years. But as it’s just been announced that the UK tipped into recession territory last year, there will always be a healthy number of stocks that will make great long-term investments. Here, a selection of our freelance writers submit some for investors to consider buying.
BAE Systems
What it does: BAE Systems is one of the largest defence companies in the world.
By Ben McPoland. The first stock that pops into my head when thinking of one that could withstand a recession is BAE Systems (LSE: BA.). The company’s customers are mainly national governments and organisations, and these don’t face the same sort of immediate financial pressures that some consumers and businesses do during an economic downturn.
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Additionally, most of the defence contracts that BAE secures are long-term. This means they’re not so easily cancelled or modified, which provides a great degree of revenue predictability. The firm had a record order backlog of £66bn last year, which relates to a final point.
That is the incredibly volatile times we’re in today, with wars in Ukraine and the Middle East, as well as ongoing US-China geopolitical tensions. Defences budgets are soaring in response to this and that is very likely to continue regardless of a recession.
That said, if Donald Trump wins the forthcoming election and promises a US exit from NATO then that could cause volatility in the BAE share price. Or perhaps it could soar to even greater heights if European nations start scrambling to boost their own defence capabilities in response.
Ben McPoland owns shares in BAE Systems.
Diploma
What it does: Diploma is a FTSE 100 conglomerate made up of companies that distribute industrial components.
By Stephen Wright. Diploma (LSE:DPLM) looks like a strange choice for a UK stock to withstand a recession. The company sells components to industrial businesses, which is a cyclical sector and likely to falter in an economic downturn.
Importantly, though, I think Diploma is well-protected from this. The firm focuses on components that are critical to a machine functioning properly, but relatively inexpensive.
As a result, I expect demand to hold up reasonably well. I don’t anticipate industrial companies stopping their production for the sake of a minor replacement part that could be replaced relatively inexpensively.
At a price-to-earnings (P/E) ratio of 37, the stock is priced to do more than just hold its own – investors are expecting growth. And if this doesn’t materialise, there’s a risk the stock could fall.
Nonetheless, I think Diploma is less vulnerable to a recession that it might initially seem. The company could surprise some people this year.
Stephen Wright does not own shares in Diploma.
Fresnillo
What it does: Fresnillo operates a number of gold and silver mines across Mexico.
By Andrew Mackie. Many investors fear a recession because of the damage it can inflict on one’s portfolio. I view them as a completely natural part of the business cycle. Bull markets might make you money, but it’s bear markets that make you rich.
If a recession does occur in 2024, then one sector I’m confident will do well is precious metals. Despite gold recently hitting an all-time high, mining stocks remain beaten-down and unloved.
One of my favoured precious metals stocks is Fresnillo (LSE: FRES). What attracts me is its silver play. Silver has a history of acting extremely explosively. Following the recession of 2008, the price of the metal went up five-fold in two years. In response, its share price appreciated 22 times over the same time frame.
But silver is more than just a monetary metal. With its excellent electrical and thermal conductivity, silver is a vital component of solar panels and electric vehicles.
One clear risk for the company is that costs continue to rise. In its latest report, they were up 18%, driven by the revaluation of the Mexican peso.
Despite this, for me, both the short and long-term investment narrative remains in place.
Andrew Mackie owns shares in Fresnillo.
Premier Foods
What it does: Premier Foods manufactures some of Britain’s most popular brands including Mr Kipling cakes and Bisto gravy.
By Royston Wild. Cost inflation for food producers will remain a threat over the short term. But I believe Premier Foods (LSE:PFD) is still an attractive stock to buy as the threat of recession looms large in the UK.
Unlike other retail segments, spending in the grocery market tends to remain stable even when consumers feel the pinch. Pleasingly this is just one of the FTSE 250 firm’s excellent defensive qualities.
Its packed portfolio of market-leading labels allows it to raise prices without a significant drop in volumes. What’s more, many of its products (like Bachelors instant noodles and soups) are cheap to buy and make, which makes them ideal purchases during tough times.
Premier Food’s profits upgrade in November underlines its ongoing robustness. Then it advised that revenues and pre-tax profit (on an adjusted basis) were up 19.2% and 21.2% respectively during the six months to September.
Today the company’s shares trade on a forward price-to-earnings (P/E) ratio of just 10.4 times. This represents exceptional value in my book.
Royston Wild does not own shares in Premier Foods.
Unilever
What it does: Unilever is a global consumer goods business specialising in food and household products such as Dove and Ben & Jerry’s.
By Charlie Keough. If the UK were to enter a recession, a stock I’d turn to is Unilever (LSE: ULVR). I’d want to focus on companies that provide essential products. And Unilever fits the bill.
The company is home to over 80 brands, many of which are products used every day. With 1 in 3 households using Unilever products daily, that highlights the dominance it has.
This protects its bottom line against tough economic conditions, to an extent. With that, management has forecasted annual sales growth between 3%-5% for the year. With a price-to-earnings ratio of around 13, I think its stock is also fairly priced.
Of course, there are risks. Inflation is falling, but it remains an issue. Unilever has bumped its prices to protect its margins, but sales volume has fallen as such.
However, I still deem it a smart play during a recession. Its 4% dividend yield is a bonus.
Charlie Keough does not own shares in Unilever.
