What is the best FTSE 100 stock to weather a lengthy recession?
That’s not a hypothetical any more. We’re in one. Or at least, we’re in something the government is keen to label a ‘technical recession’.
In any case, the FTSE 100 is filled with mature companies with global revenues and world-class dividend yields. It might be just the tonic to get through some economic turbulence.
This is one reason why the Footsie went up in 2022 when other indexes like the S&P 500 crashed.
So here are my two favourite recession-resistant stocks on the FTSE 100. I’d buy them both with spare cash today.
Shell
Oil major Shell (LSE: SHEL) is not always where one might look for a company that does well in a recession.
A slowing economy means less demand for oil which pushes down the price and also the barrels sold.
However, Shell is not tied to the UK economy so much as the world economy. Only about 17% of revenues came from the UK last year.
The company is also a good hedge against global tensions. Record profits were achieved after the oil price shot up following the invasion of Ukraine.
Sadly, the $80 brent crude price could easily shoot up again. The World Bank predicted $150 a barrel if conflicts escalate.
Big cash flows have meant big returns too. Between dividends and buybacks, the return surpassed 7% last year.
Finally, Shell trades for around seven times earnings. That looks like a bargain compared to international rivals like TotalEnergies (11 times), ExxonMobil at (12 times) and Chevron at (14 times).
Tesco
In some respects, Tesco (LSE: TSCO) is an obvious recession-resistant stock. It sells food, goods and essentials that people will buy even in a downturn.
But in other respects, it might be a risky stock to buy thanks to the rise and rise of budget shops like Aldi and Lidl that people might flock to if times get tough.
However, Tesco is unique among the traditional ‘big four’ supermarkets in standing its ground against these cheaper alternatives.
The latest Kantar market share data has Lidl at 7.5%, Aldi at 9.4%, Sainsbury’s at 15.6% and Tesco at 27.6%. Tesco is actually higher than a year ago!
Retaining such a dominant position in the market helps with economies of scale too – helpful for boosting the razor-thin margins supermarkets operate on.
Tesco has the most popular clubcard too, with over 20 million Brits signed up. This helps keep customers ‘sticky’ even if we are in a recession.
As for valuation, Tesco trades at a tad over 14 times earrings. That strikes me as quite reasonable all things considered.
