What Stocks May Help You Survive A Recession?
The Bank of England’s warning that the UK is heading for its longest recession in history has left people wondering what stocks are likely to do well over the next two years.
The Gross Domestic Product is set to continue falling during 2023 and into the first half of 2024, leading to challenging times for the economy.
While there’s no guarantee that any stocks will flourish during a recession, as the value of investments can go up or down, certain companies have thrived better than others historically.
Which Stocks Typically Thrive In A Downturn?
City analysts say the stocks that do best in a recession are typically those that consumers see as representing good value. For example, consider Ryanair over British Airways, Primark over Next and Lidl over Marks & Spencer.
As the saying goes, consumers have to cut their coats according to their cloth when times are hard. This is what happened during the pandemic. The lockdowns and the ‘stay at home’ economy saw shares in Just Eat, Netflix and Amazon boom.
Today, consumers have more choices than they did during the pandemic when the lockdowns were enforced. However, there will still be a shift in consumer trends for the duration of the recession and possibly even after the economy turns a corner.
How Do Investors Spot A Winner?
Investors should seek out companies that have a perception of necessity and good value. The luxury suppliers are likely to give way to essential suppliers.
This means suppliers of household goods, such as toothpaste and toilet roll, are good examples of stocks that will probably do well during a recession.
Check out companies like Unilever, Premier Foods – the owner of brands such as Bisto, Bird’s and Mr Kipling – and Tate & Lyle.
Food and drink staples are probably going to behave in a similar way. Research has shown the cost of groceries in October 2022 was 14.7% more than in October 2021. This means consumers are paying an average of £682 more a year for grocery shopping.
With no sign of price hikes slowing down, budget-conscious food companies such as B&M Bargains and Greggs will be likely to be shoppers’ favourites.
What Non-Food Stocks Might Do Well?
In terms of transport, companies such as Halfords are expected to do well, as people are likely to go for maintenance, rather than buy a new vehicle. They also stock a popular range of budget bikes.
The boom in pet ownership during the pandemic has led to stocks of veterinary group CVS and retailer Pets at Home remaining buoyant. This is likely to continue, although animal feed companies manufacturing luxury pet foods and treats are unlikely to be as successful.
No one can guarantee which stocks will do well or dip, as there’s always a risk even at normal times, let alone during a recession. Always remember this and do your research before making a decision.
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