Economist Joseph Stiglitz famously warned that the only perfect hedge is a Japanese garden. As the UK economy sinks into recession, with 1 million jobs lost and hundreds of thousands of companies at risk of collapse, many investors will be asked to stack in so-called recession-resistant stocks.
Russ Mold, investment analyst at AJ Bell, said the 20.4% decline in UK gross domestic product fell in the second quarter already in the markets, which explains the muted reaction to the grim news. The real test will be the speed of economic recovery. As the coronavirus pandemic continues, markets could react negatively.
“Potential ‘recession-resistant’ equities as funds are therefore more likely to return to their own as the pandemic continues, the number of local lockdowns grows and growth disappoints or – worse – GDP continues to fall,” Mold said.
Here are Mold’s four picks for investors looking for recession-proof stocks:
Centamin
Centamin CEY,
the Egypt-based FTSE-250 gold miner, has raised its interim dividend by just 50% to show what could happen if the precious metal continues to rise in price. As in the first half, a 9% increase in exports turned into a 56% jump in sales and a 280% jump in net profits, thanks to higher gold prices.
“If the recession continues or deepens, it seems very plausible that governments will spend more, increase their already substantial budget deficits, and central banks will take action with more quantitatively demanding and unorthodox monetary policies. If history is one manual, then this is foremost territory for gold, given the status they perceive as a port and a value of value, ”Mold said.
H&T
H & T HAT,
is Britain’s largest pioneer broker and that operation represents about half of its revenue. The rest is represented by the retailers: the sale of new and second-hand jewelry from stores and online, personal loans, as well as some gold buying, foreign exchange and check-cashing services.
Mold believed that H&T could provide a potentially valuable service to those who do not have access to traditional high street or online banking facilities, and their business should continue in the event of a prolonged economic downturn as a result of the pandemic.
“A bilingual return on capital and strong cash conversion highlight the strengths of the company, where the panders will reopen after the lockdown, although an increase in loan values may be a risk to consider, in the event of a long, deep decline, although H&T proactively assisted customers during lockdown with interesting holidays and deferred payments, ”said Mold.
IP Group
The FTSE-250 component invests in, and operates commercially, the intellectual property (IP) developed by UK universities. The group’s portfolio is making good progress, as evidenced by the growing appreciation of Oxford Nanopore and the sale of a stake in Ceres Power, and the economy will not have much of an impact on many of the new companies that IP Group IPO,
is backing.
“Even better, the balance is net cash and the stocks are earning with a 32% discount to net asset value, which is a good start when it comes to seeking downside protection,” Mold said.
However, he warned that IP Group is not suitable for all investors. “The company has no dividend and there are also clear capital risks associated with investing in young companies, as they may fail or require further investment and generate more cash, even if they make progress, although even successful investments take a long time. can realize their potential. ”
Telecom Plus
A sound balance is always a good start, as it offers downside protection, and Telecom TEP,
has barely £ 50 million in net debt, including lease, £ 55 million in further loan available, and no debt to pay off until 2023 at the earliest.
Mold said this is easing the pressure and the FTSE-250 model for multi-program vendors seems robust and proven in the long run, as it seeks to provide good value to customers, and provides the convenience of a single bill over their energy, telecommunications and insurance services.
“Demand must remain relatively resilient, even in the event of an economic downturn, although investors want to keep an eye on potentially bad debts, if a really deep recession hits the country and customers find it more difficult to pay their bills. A commitment to an annual dividend of 57p a share this year could also manage income seekers, “he added.
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