Earlier this month, the Office for National Statistics (ONS) officially declared that the UK economy is in recession. It was the first time since the 2008-2009 financial crisis that the UK economy had entered a year of recession.
A recession is generally defined as two consecutive quarters of decline in the. So if an economy shrinks over a six-month period, it is in recession. As the economy struggles and grows, businesses sell less and a country's economic output declines.
If we analyze the figures released by the ONS for monthly growth in the, and industries, the contraction in Britain's second quarter was extremely steep. While the numbers showed a rebound in June, the economy may not be out of the woods yet.
When investing, risk and return go together. Where there is a potential return, there is also a potential loss. Diversification is all about reducing risk. While it will not eliminate all risks in an equity portfolio, an investor's long-term risk-return ratio is likely to be more attractive.
So today we're focusing on two stocks that can help investors make their long-term portfolios recession-proof.
Healthcare is Typically Recession-Resistant
The current pandemic has reminded billions of people around the world of the importance of health and healthcare. Investors in the FTSE 100 have access to a wide variety of healthcare stocks. With an enviable drug pipeline, GlaxoSmithKline (LON :), (NYSE 🙂 has the second largest market cap on the UK index.
The healthcare giant is regularly in the news with its work on a possible vaccine against the coronavirus. In April, Sanofi (PA :), (NASDAQ 🙂 and GSK agreed to work together to develop a vaccine for COVID-19. Mainly thanks to Shingrix, its shingles vaccine, GSK & # 39; is the world's largest vaccine manufacturer.
At the end of July, GSK announced robust. Group sales were £ 7.6 billion (US $ 10.0 billion) and pre-tax profit was £ 2.6 billion (US $ 3.4 billion). The company reports revenues in three segments: pharmaceuticals, vaccines and consumer health care. Analysts noted that vaccine sales fell 27% in the quarter, mainly due to disruptions caused by the pandemic. Therefore, market participants believe this decline will be a temporary hiccup. The group's operating margin was 37.4% and free cash flow totaled £ 1.95 billion (US $ 2.58 billion).
GlaxoSmithKline 1-year chart.
While GSK stocks have rebounded significantly since the March lows, the stock is still down about 13% year-to-date. The forward P / E and P / S ratios are 13.04 and 2.23, respectively.
Finally, the current share price supports a 5.15% dividend yield in the UK. As the company makes quarterly dividend payments, the stock is expected to go ex-dividend in mid-November. We believe that GlaxoSmithKline stocks provide value for long-term portfolios, especially if the price were to fall below 1,500 pence (or towards the $ 39 level for US-listed stocks).
Relying On Utilities
Major utilities rank high on passive income investor watchlists. But in addition to dividend income, utility stocks can also help market participants better weather an upcoming recession. After all, we all need electricity, gas and water to stay alive. As a result, utility demand is likely to remain relatively stable, even as consumer budgets can contract in the coming weeks.
This brings us to National Grid (LON :), (NYSE 🙂 . This multinational electricity and gas company owns and operates a large part of the gas and electricity infrastructure in the UK. The group also serves consumers in the Northeastern US
On June 18, it announced 2019/20. Operating profit increased 1% to £ 3.5 billion (US $ 4.63 billion). Management's cost-efficiency programs saved approximately £ 100 million (US $ 132 million).
It is important to note that the figures were for the full year ending March 31. Therefore, investors should keep an eye out for future trading updates on the full effects of the pandemic and the lockdown earlier this year.
Still, chief executive John Pettigrew sounded optimistic when he remarked:
"Looking ahead, although COVID-19 will have an impact on our financial performance in FY21, we expect it to be largely recoverable in the coming years and therefore do not expect a material long-term economic impact on the group."
In the event that the "stay at home, work from home" trend continues in the coming months, there is likely to be greater demand for electricity and gas for household use. Stocks of utility companies, such as NG, can thus be robust choices to include in long-term portfolios.
National Grid 1-Year Chart.
So far in the year, NG shares are down about 6%. However, that metric only tells half the story for 2020. Since early spring, NG stock has risen by about 11%. The forward P / E and P / S ratios are 17.27 and 2.13, respectively.
With a 5.45% dividend yield in the UK, we expect NG shares to remain a favorite of income-seeking investors. The shares are expected to go ex-dividend at the end of November. We'd like to buy the dips, especially if the price moves towards 850p (or towards the $ 55 level for US-listed stocks).
