2 shares to buy as the IMF forecasts a UK recession
When recessions are forecast, investors often look for shares to buy with defensive qualities. Defensive stocks are those that generate relatively stable performances, regardless of the market cycle. As such, with recessions forecast, they would be expected to outperform the index moving forward.
Defensive stocks can also be referred to as non-cyclical. They’re expected to provide steadier dividends and possess a more stable share price. This is often because these firms produce necessities, such as utilities, healthcare, or consumer staples.
But I don’t need to look just at defensive stocks. The International Monetary Fund (IMF) says the UK is the only G7 economy likely to experience a recession in 2023. China’s economy is resurgent and there are other parts of the global economy that could perform well throughout the year.
So what stocks am I looking at?
The Renewables Infrastructure Group
The Renewables Infrastructure Group (LSE:TRIG) is a large British trust dedicated to investments in assets generating electricity from renewable sources.
Electricity demand is one of those areas of the market that remains broadly constant at all points of the economic cycle. As such, I expect revenues will remain robust over the next couple of years.
The trust invests in renewable assets across Europe, including the UK, Ireland, France, Germany, Spain and Sweden. This large geographical footprint provides a degree of protection against variable conditions in a single geography.
This wider geographical footprint may also help the trust when it comes to the Electricity Generator Levy — a tax on the extraordinary returns of electricity generators. I think there’s still a little confusion as to how the industry will respond to the levy. Although it will have been factored in to most share prices in the sector.
Right now, it doesn’t look expensive either. It trades with a price-to-earnings ratio of six and offers a dividend yield of 5.2%. That’s why I’m looking to add this one to my portfolio.
Sociedad Química y Minera de Chile
Sociedad Química y Minera de Chile (NYSE:SQM) has surged in recent years as demand for the price of lithium has soared. And in the context of this article, the state of the UK economy and demand for lithium don’t have a much correlation — so that’s a positive.
But there are many more positives too. China’s reopening will likely sustain demand for the increasingly precious metal which is a vitally important component in the green agenda. For one, the nation is fast-becoming the global hub for electric vehicle production.
More generally, during periods of market volatility, I’m often on the lookout for stocks that benefit from long-term trends. The green agenda, or the electrification agenda, is perhaps the most obvious trend of our times.
China is full of surprises right now, and I’m aware that some of those could be negative as the year progresses. However, for now, the environment appears positive and conducive for lithium demand. That’s why I recently bought this stock.
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James Fox has positions in Sociedad Química y Minera de Chile. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023