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I’m on the hunt for FTSE 100 stocks that have the resilience to survive current stock market volatility. So I was fascinated to read a report by Mark Nelson, senior equity analyst at Killik and Co, highlighting companies that he reckons can thrive in today’s “challenging environment”.
Nelson named five in total but it was the three FTSE 100 stock picks that intrigued me, as I have admired all of them.
The first was information and analytics firm RELX (LSE: RLX), which I added to my watchlist in June. There was a big debate at the time over whether artificial intelligence would destroy its business model, or enhance it.
Banking on resilience
The verdict appears to be positive. RELX is taking the fight to AI by building the machine learning technology into its products. Nelson praises its strategy of “systematically transforming its legacy information-based products into value-add decision tools”. This should help drive long-term revenue growth.
He sees its revenues as “relatively defensive and predictable”, as they’re mostly subscription-based or contracted on a multi-year basis. The business enjoys a high level of diversification by both sector and geography. RELX isn’t cheap, trading at 26.7 times earnings, but that’s because it’s a stock in demand.
Nelson’s next pick is an old favourite of mine, renewables-focused power giant SSE (LSE: SSE). In contrast to RELX, it looks cheap trading at 9.7 times earnings. It also offers a generous yield of 5.74% (RELX yields 2.06%).
SSE’s core businesses are in electricity networks and renewable energy generation. Nelson calls these “two of the pillars on which the country’s net zero economy will be built”.
He acknowledges that the renewables industry faces short-term challenges as higher interest rates and supply chain disruptions drive up costs. Yet as a regulated monopoly offering crucial infrastructure, it will prove resilient. We can’t allow it not to be.
SSE must pour money into building electricity networks, with a planned £9bn spend over the next four years. This can hit its short-term dividend capability but should support longer term earnings growth. I’m keen to take advantage of its recent share price dip.
This is my number one pick
I’d buy Nelson’s third pick, global spirits giant Diageo (LSE: DGE), any time. But it looks particularly tempting today, with the share price down a fifth over the last year. It’s now valued at 19.42 times earnings, cheap by its standards. It yields 2.5%.
Nelson notes that Diageo is a consumer discretionary stock and sales may vary with economic conditions. Yet he says it will get a boost from the “growing preference for spirits over beer and faster growth in premium spirits where Diageo is well positioned”.
Sales in its key US market have slowed following an exceptionally strong period during the pandemic. However, Nelson expects the worst has now passed, with inventory levels at distributors returning to historic levels. I’m getting thirsty to buy Diageo, reading that, and I’ll make it my first stock purchase of the three, when I next have cash to spare.
As with all my stock picks, I’d aim to hold them for years and years. Up to at least 2030 and with a fair wind, for much longer after that.
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