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2 FTSE 100 stocks that could surge during a recession!

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FTSE 100 stocks are well represented in my portfolio. The index consists of the UK’s biggest 100 listed stocks. However, this doesn’t necessarily mean that the index’s performance is heavily linked to the UK economy. In fact, 70% of the index’s revenue comes from overseas.

In some respects, the index itself is insulated from the recessionary environment we’re seeing in the UK because of the firms’ international reach. So let’s take a look at two companies I’ve bought ahead of a recession at home.

International reach

The pound is certainly weak right now, so that’s positive for companies that make a large proportion of their income overseas. That’s because when, for example, USD earnings are converted back into GBP, the figure will be greater than before.

The pound is currently around 12% weaker than it was versus the dollar a year ago. That’s a huge boost for companies selling predominantly in the US.

Unilever (LSE:ULVR) is one such company. It’s a blue-chip, fast-moving consumer goods giant selling in 190 countries. The London-based firm claims that 3.4bn people use its products every day. Some 58% of its income comes from emerging markets, while around 17% of its revenues are derived from the US.

Another such firm is Diageo (LSE:DGE). In January, Diageo said that a strong pound had negatively impacted earnings. However, things have changed since then. Now £1 is worth just $1.19, down from $1.35 a year ago.

Upwards of a third of its sales ($6bn) come from North America. This is around double the company’s earnings in Europe — the pound and the euro have been steadier this year as both the UK and European economies have struggled.

Brand value

When pockets are squeezed, people keep buying familiar brands. It doesn’t seem logical, but that’s the way it works — it’s a sort of brand loyalty thing. As such, brands give firms the ability to pass higher costs onto customers.

Unilever says it has more than 400 household names under its umbrella, including 13 brands that deliver more than £1bn in revenue every year. These include Ben and Jerry’s, Dove, Vaseline, and Magnum ice cream. Some 13 of Unilever’s product lines also appear in Kantar’s top 50 global brands.

In its first-half results, Unilever said it lifted its prices by 9.8% compared to the same period of 2021. However, the firm only saw a 1.6% contraction in sales volume. That’s pricing power at work.

Diageo also has defensive qualities though its many household alcohol brands such as Johnnie Walker, Guinness, Baileys, and Smirnoff. And these product lines also have considerable appeal in developing economies where brands take on a status symbol.

Naturally, a deep recession won’t be good for consumption patterns, that’s clear. But defensive stocks are somewhat of a haven when times are tough. That’s why I’m expecting these stocks to outperform — and even surge — during a recession.

The post 2 FTSE 100 stocks that could surge during a recession! appeared first on The Motley Fool UK.

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James Fox has positions in Diageo and Unilever. 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.