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Many UK stocks have defensive qualities that make them good investments in a recession. In light of the recent IMF forecast that the UK economy will contract by 0.6% this year, I have my eye on resilient stocks that can perform well in a difficult economic environment.
At the moment, I’m waiting a little longer to see if the gloomy predictions are correct. But, looking ahead, here are three FTSE 100 stocks I would buy to help protect my portfolio if the UK goes into recession.
AstraZeneca
I already have shares in the pharmaceutical giant AstraZeneca (LSE: AZN). The biotech company is currently the largest component of the FTSE 100 with a market capitalization of £179.3bn.
The healthcare sector is non-cyclical, driven by strong demand for medicines, regardless of overall economic performance. Coupled with the long-term demographic tailwind of an aging population, I think AstraZeneca stock is an excellent investment when markets are choppy.
CEO Pascal Soriot has confirmed that the firm is on track to deliver at least 15 new drugs in this decade. With diverse strength in therapy areas including oncology, cardiovascular conditions and respiratory diseases, AstraZeneca’s future looks bright.
Declining sales of covid vaccines is a risk to AstraZeneca’s share price. Excluding Covid medicines, the business expects double-digit revenue growth this year. However, this figure falls to a “a low to mid single digit percentage” if they are included.
Nonetheless, a promising portfolio suggests there is considerable potential for share price growth, even as the world moves on from the pandemic.
Central
He Central (LSE:CNA) share price is soaring today, buoyed by news that its 2022 total operating profit tripled to £3.3bn.
Following some excellent results, the owner of British Gas announced that it will extend its share buyback program by £300 million. This should continue to add shareholder value as Centrica increases its stake to 10% of all shares currently issued.
High energy prices could persist this year as the Russo-Ukrainian war continues. Sanctions on Russia are unlikely to be lifted any time soon. This should continue to restrict the supply of oil and gas in international markets, and Centrica will benefit.
The possibility of further government intervention beyond the 45% windfall tax on electricity generators is a key risk. The company’s record profits will undoubtedly strengthen political pressure for further action.
However, I think Centrica shares could outperform if geopolitical uncertainty continues to affect other areas of the stock market.
Diageo
Producer of alcoholic beverages Diageo (LSE:DGE) is a Dividend Aristocrat with strong defensive credentials.
This FTSE 100 stock currently offers a dividend yield of 2.17%. The company’s investment in premium brands has supported its margins despite the inflationary environment. About 57% of the group’s sales come from these labels.
Diageo is also expanding its share buyback program. An additional £500m of capital will be returned to shareholders in 2023/24. In addition, strong pricing power gives the company a competitive advantage. This helps protect the company’s bottom line in difficult economic conditions.
One risk is the price-earnings ratio, which arguably looks elevated at 22.93. However, I still believe Diageo’s share price is cheap. In my opinion, a premium product range warrants a premium rating. If a recession hits, Diageo will be near the top of my list of stocks to buy.
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