Beating the recession

By THIS IS MONEY
Updated:

 

WHICH shares are best in a recession and which companies did well in the last one? DR, Milton Keynes.

Richard Hunter, at stockbrokers Fyshe Group, says: No companies do well in a recession, although some suffer less than others.

It is, however, generally accepted that if 'recession-proof' shares exist, they are the defensive ones.

Defensive stocks are those companies that provide necessary and essential services, such as electricity, gas, water and food. Because of the nature of these products, they are accepted as being able to provide a degree of stability during periods when the economy is in decline.

People will always need to eat, drink and keep warm. Defensive stocks might also be systematically undervalued because investors shun their lack of glamour. If so, they should consistently outperform.

This contrasts with cyclical companies, businesses whose earnings are closely tied to the business cycle. When business conditions are good, these are usually profitable, and the share price may rise.

In a recession, or when business conditions are in decline, the company's earnings and share price usually fall. Steel, cement, building, airlines and motor manufacturers are considered cyclical industries.

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