The FTSE 100 crashed by over 10% at the start of April as fears of a new potential recession started to emerge. While a tariff-induced economic slowdown is far from certain, preparing for the worst-case scenario might still be a sensible idea, especially for investors who aren’t comfortable with volatility.
With that in mind, let’s explore which of the UK’s largest businesses are likely to be most resilient during a recession.
Defensive stocks could outperform
When business is booming, and GDP’s growing, cyclical companies operating in industries like consumer discretionary and technology tend to outperform.
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However, the opposite is true during a market downturn. Instead, under these conditions, the best-performing stocks are usually the ones operating in defensive and non-cyclical sectors. That includes consumer staples, utilities, and healthcare, among others.
Fortunately for investors, there are plenty of these companies sitting in the FTSE 100 today. And three that often get lots of attention are National Grid, GSK, and Reckitt Benckiser (LSE:RKT)
Exploring options
National Grid’s ability to keep chugging during a recession isn’t too surprising. After all, regardless of what’s going on in the economy, people and businesses still need access to electricity. It’s a similar story with GSK. As a key developer and manufacturer of life-saving drugs and treatments, demand doesn’t suffer during adverse market conditions.
Reckitt Benckiser is arguably more sensitive than these other two businesses, but it’s still proven itself to be fairly resilient during past recessions. As a quick reminder, the company sells a vast portfolio of branded staple products like Dettol disinfectant, Finish dishwasher tablets, and Air Wick air fresheners that can be found in most supermarkets. Suppose households’ budgets become significantly tighter. In that case, demand for cheaper alternatives to Reckitt’s branded products might harm sales volumes.
However, despite this possibility, the group’s performance during previous recessions suggests brand loyalty even when enduring economic woes. In fact, during the short-lived UK recession across the second half of 2023, Reckitt delivered some solid performance when excluding the voluntary recall of Nutramigen.
Nothing’s risk-free
Despite being defensive and resilient businesses, all three of these stocks aren’t guaranteed to outperform. National Grid’s tackling the challenge of a heavy debt burden, while GSK’s navigating through a complex and expensive regulatory environment.
As for Reckitt, we’ve already covered the risk of potential product recalls. And there’s also the general challenge of managing a portfolio of brands, not all of which have been winners over the years. In fact, in 2024, the firm announced plans to sell off its Air Wick brand in an attempt to refocus the business on its most successful products.
Nevertheless, these enterprises have a long track record of navigating through some of the toughest operating environments. As such, investors may want to consider researching them further as potential opportunities for portfolio diversification in 2025.
