Today’s the day. The much-anticipated general election has finally arrived and we go to the polls to decide Britain’s fate.
Pressure has been mounting against the Conservatives, but they are still tipped to win. If they don’t, then we’ll be in for another hung parliament, which is sure to cause further havoc in Brexit negotiations and economic slowdown across the UK.
New Prime Minister
Boris Johnson needs to win nine extra seats to secure a Tory majority and forge ahead with his plan to remove Britain from the European Union by January 31.
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If he doesn’t get those seats, then Labour ‘wins’ and Jeremy Corbyn is our new Prime Minister. It will result in a coalition government comprising parties with a mix of views and deadlock may ensue.
In the immediate aftermath of the general election, stocks are tipped to fluctuate and then resume the suppressed nature of recent months.
There are so many unknowns at play it takes experienced investors and risk-takers to buy into British equities and I imagine that’s how it will continue until Brexit is concluded in some form or another.
Recession-proof portfolio
In the meantime, there are some things we can all can do to recession-proof our financial portfolios.
Recession-proof stocks are those that can withstand market volatility and live to see another day. I do not deem retailers recession-proof as is plain to see from the number announcing profit warnings and losses in recent years.
When choosing recession-proof stocks we need to be thinking long term. Even the best company can suffer a share price drop if the market experiences a correction, which it often does before entering recession territory.
Healthcare, fast-moving consumer goods, waste management and defence contractors can be safe picks to own in a recession as they are needed in good times and bad. Some examples that could fit the bill include Biffa, Hikma and Diageo.
Overvalued or long-term play?
Biffa is one of the biggest waste management companies in the UK. Its share price has risen steadily throughout 2019 and is up 24%. I think investors preparing for recession have already noted its value and bought in. It has a dividend yield of nearly 3% but its price-to-earnings ratio (P/E) is 33, which is swimming in the realms of overvalued. As such, I’d avoid buying-in unless on a significant dip.
Pharmaceuticals company Hikma has also risen a steady 9% year to date. Hikma’s P/E is a more respectable 22, which borders on overvalued. It has a dividend yield of 1.5% and a debt ratio of 34%. Compared with its competitor AstraZeneca, Hikma’s fundamentals look good. AstraZeneca has a P/E of 56 and debt ratio close to 70%!
Diageo saw a constant share price climb through to early September but since then has been on the decline. It currently has a P/E of 23, a dividend yield of 2% and a debt ratio of 58%. It appears to have a good business model and has honed its marketing of premium alcoholic drinks to expert level. Favourite Diageo tipples include Baileys, Johnnie Walker and Guinness. Projected net sales growth is anticipated to sit between 4% and 6% this year and it has a competitive advantage with its far-reaching global customer base and strong position in the market.
Choosing recession-proof stocks can be a bit of a gamble, particularly if they are overvalued, but for long-term gains, I don’t think you’ll go too far wrong within these sectors.
