Choosing the right stocks to buy can be a lengthy process. Very few people can part with their money without doing all their own research first.
Right now I’m looking for stocks with certain characteristics. Firstly, I’m want companies that perform well even during downturns — defensive stocks. I’m also looking at companies that make a good proportion of their income in dollars — with the pound weak, this should inflate GBP earnings. And with interest rates rising, I want companies that don’t have debt issues or ones that can benefit from higher rates, such as banks.
So here are three simple stocks I’d buy now with £1,000.
Unilever (LSE:ULVR) is a blue-chip, fast-moving consumer goods company with defensive qualities. The London-based firm gets its defensive qualities from the brands that it owns.
Customers tend to continue buying brands that they know even when things might be getting tough economically. Unilever owns many household brands such as Hellmann’s, Marmite, Heinz, Persil, and Lifebuoy. The latter is a soap brand that only appears to be sold outside the West.
And with inflation around 10%, these brands are particularly useful as it allows Unilever to pass costs on to customers. In its H1 results, Unilever said it lifted its prices by 9.8% versus the same period in 2021 and this only resulted in a small fall in sales volumes.
A prolonged recession won’t be good for consumption, but as times get tough, I’d expect Unilever to perform better than its peers. It looks a little expensive with a price-to-earnings (P/E) ratio of 17. But I think it’s worth it. I’ve already added Unilever to my portfolio. It also sells in 190 countries.
Drinks maker Diageo (LSE:DGE) also has defensive qualities, selling brands like Johnnie Walker, Guinness, Baileys, and Smirnoff. Moreover, in January, Diageo contended a strong pound had negatively impacted earnings. But that’s certainly not the case anymore with £1 being worth just $1.16 today.
And this is important because the company makes the vast majority of its earnings outside the UK. More than a third of the firm’s sales come from North America — the figure, $6bn, is around double the company’s earnings in Europe.
The last full year was a stellar one, with net sales rising 21.4% to £15.5bn. Recessions are unlikely to be good for alcohol consumption, but I think Diageo, with its strong brands and its dollar earnings, will continue to perform well.
I see British banks as a good purchase right now. With interest rates rising, these stocks are making more money than they have done for years. NatWest (LSE:NWG) is a fairly safe choice. It’s still partly owned by the government and is heavily focused on the UK market.
Net interest margins (NIMs) — the difference between the interest income earned and the interest paid out to lenders — were up in the first half report, and they’re likely to increase further. Analysts are anticipating that Bank of England interest rates will get as high as 4% in 2023.
Recessions aren’t good for credit quality, but higher NIMs more than make up for it.
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James Fox has a position in Unilever and NatWest. The Motley Fool UK has recommended Diageo and Unilever. 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.