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Fears of a recession and the growing cost-of-living crisis have led to many markets sinking. Here are two shares I’d buy to take advantage.
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Global indexes have seen falls over the past year. For example, the S&P 500 has sunk 11% during this period, the Nasdaq has fallen 21% and the FTSE 350 has dipped 3%. However, these dips have seen several quality companies fall to great buying levels, as their long-term prospects remain thoroughly intact. Therefore, here are two shares I’d buy for the long-term.
Nike (NYSE: NKE) has proven to be an extremely reliable stock over the past few years. In fact, in the past half-decade, the Nike share price has risen 86%, while those who bought during its IPO in 1980 would be sitting on a staggering gain of over 60,000%, far exceeding the S&P 500. However, over the past year, the sportswear company has sunk over 30%. I feel this offers a compelling entry point for me.
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For example, in the full year ending May 31, Nike managed revenue growth of 5% to $46.7bn and net income of $6bn, up 6% year-on-year. At the same time, shareholder returns were also increased. During the year, total dividends totalled $1.8bn, up 12% from the prior year. And the company repurchased $4bn of its own stock.
There are some worries moving forward though. For example, in the current cost-of-living crisis, consumers may stop buying premium branded sports clothes and shoes in order to preserve cash. This could have a knock-on effect for Nike. Further, in the recent trading update, it was announced that operating overhead costs have increased by 11% to $11bn, partly due to wage increases. This factor could strain profit margins moving forwards.
But with a price-to-earnings ratio of under 30, the Nike share price is far cheaper than it has been historically. For example, post-pandemic, the company’s P/E ratio was over 50. With it undertaking an $18bn share repurchase programme over the next few years, I also believe that earnings per share can grow. For these reasons, I would add some Nike shares to my portfolio after its recent drop.
When looking at which shares to buy in the face of a potential recession, I like companies with strong brand loyalty. With a drinks portfolio of over 200 brands, Diageo (LSE: DGE) offers just that. These labels include Pimm’s (one of the big names during the summer) and Guinness (a firm favourite in nearly all pubs). Other globally recognised brands include Don Julio and Captain Morgan.
Due to the extensive histories of these names, brand loyalty is high. This gives Diageo significant pricing power, meaning it can pass on rising costs to customers more easily than some other companies can.
There are some risks, however. For example, the group is winding down its business operations in Russia, and this is likely to lead to large costs. At the same time, the company has a price-to-earnings ratio of over 20, which is above the FTSE 100 average.
But due to its defensive qualities, I’m willing to pay this premium. Therefore, I may add more Diageo shares to my portfolio.
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Stuart Blair owns shares in Diageo. The Motley Fool UK has recommended Diageo and Nike. 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.
Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.
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Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.
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