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Tomorrow (13 February), preliminary data for UK GDP from Q4 last year will be released. Economists surveyed expect it to show a 0.1% fall. With early indications that the start to 2025 hasn’t been much better, another negative reading for Q1 would put the UK into a technical recession. For an investor concerned about this risk, here are two FTSE 250 stocks to consider.
Essential goods sold
The first company is B&M European Value Retail (LSE:BME). The business sells low-cost homewares, garden products, toys and more via big-box stores. It trades both with businesses and directly to the public.
Given the bulk-buy, just-about-essential nature of goods sold, it’s a defensive stock. What I mean by this is that if we get a recession, investors might sell riskier growth stocks and buy B&M shares to try and protect themselves. Demand for the goods should remain firm even during a downturn. Let’s be honest, even if finances get tight, we still need to buy things like toilet roll and dishwasher tablets!
The company could benefit from consumers trading down during tough times. For example, whereas a customer might now buy branded products, during a recession they might cut costs and buy from B&M instead.
The share price is down 35% over the past year. This is partly due to a recent lowering of the annual profit forecast as like-for-like sales in the UK fell by 2.8% in Q3. Even though this is a risk going forward, the business is still due to post an annual core profit of over £600m, so I don’t feel investors should be overly troubled by this.
If anything, the share price drop, which put the stock last month at the lowest level since November 2022, could represent a good value purchase.
Security from utilities
A second idea is Pennon Group (LSE:PNN). The firm is a UK-based water and waste management company, which primarily operates in through its subsidiary, South West Water. The stock is down 12% over the last year.
It makes money through the provision of the water and wastewater services to both residential and commercial customers. It’s a business model that has proven to be profitable over many years. As it’s a mature company, it does rely on paying out dividends to keep investors happy. At the moment, it has a generous 7.81% dividend yield.
Investors could find this defensive stock appealing, as even during a recession customers will still need water provisions. Even when I look at the pandemic period of 2020-2022, revenue didn’t materially fall. This makes sense, as the services provided are key, regardless of the economy.
The dividend payments are also appealing. If the stock market does fall during the recession, being able to pick up income in the process can help to offset losses elsewhere.
However, one concern is the fines over the past year due to sewage spills. The financial and reputational damage this can do is something the company needs to focus on.
I believe both stocks could be good for an investor to consider, if they are worried about the current state of the UK economy.
