Economist Joseph Stiglitz famously warned that the only perfect hedge is a Japanese garden. As the U.K. economy sinks into recession, with almost one million jobs lost and hundreds of businesses at risk of collapse, many investors will be tempted to pile into so-called recession-proof stocks…
Russ Mould, investment analyst at AJ Bell, said that the 20.4% slump in the U.K’s gross domestic product in the second quarter has already been priced into markets, which explains the muted reaction to the grim news. The real test will be the speed of the economic recovery. If the coronavirus pandemic continues, markets could react negatively.
“Potentially ‘recession-proof’ stocks or funds are therefore more likely to come back into their own if the pandemic persists, the number of local lockdowns grow and growth disappoints or — worse — GDP keeps falling,” Mould said.
Here are Mould’s four picks for investors looking for recession-proof stocks:
Centamin CEY, -2.18% the Egypt-based FTSE-250 gold miner, has just hiked its interim dividend by 50% to show what could happen if the precious metal keeps rising in price. As in the first half, a 9% increase in output turned into a 56% jump in sales and a 280% leap in net profits, thanks to higher gold prices.
“If the recession lingers or deepens, it seems very likely that governments will spend more, increasing their already substantial budget deficits, and central banks will swing into action with more quantitative easing and unorthodox monetary policies. If history is any guide this is prime territory for gold, given its perceived status as a haven and a store of value,” said Mould.
H & T
H & T HAT, +1.30% is Britain’s largest pawnbroker and that operation represents roughly half of its revenues. The rest is represented by the retail operations: the sale of new and second-hand jewelry from shops and online, personal loans, as well as some gold purchasing, foreign exchange and check-cashing services.
Mould believed H & T could provide a potentially valuable service to those who do not have access to traditional high street or online banking facilities, and its business should prove resilient in the event of any prolonged economic downturn owing to the pandemic.
“A double-digit return on capital and strong cash conversion highlight the strengths of the business, where the pawnbroking shops are reopening after the lockdown, although an increase in loan impairments could be a risk to consider, in the event of a long, deep downturn, although H & T proactively helped customers during lockdown with interest holidays and payment deferrals,” said Mould.
The FTSE-250 constituent invests in, and works to commercialize, the intellectual property (IP) developed by British universities. The group’s portfolio is progressing well, as shown by the rising valuation of Oxford Nanopore and the sale of a stake in Ceres Power, and the economy will have little influence on many of the fledgling firms that IP Group IPO, -0.66% is backing.
“Better still, the balance sheet is net cash and the shares trade at a 32% discount to net asset value, which is a good start when it comes to looking for downside protection,” said Mould.
However, he warned that…
Continue reading at MARKETWATCH.com