UK shares: has avoiding a recession triggered a once-in-a-decade opportunity?

Could news of Britain avoiding a recession be an opportunity to buy some of the worst-performing UK shares? Stephen Wright thinks so.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

I think this could be a great time to buy UK shares. Recessions happen on average once every 10 years and are often accompanied by falling share prices, giving enterprising investors a chance to find bargains.

But what’s better than a recession? Avoiding one when everyone is expecting one and marking down share prices – which is why I see this as a real opportunity in UK stocks at the moment.

Recession cancelled?

The two worst-performing FTSE 100 shares over the last 12 months have been Persimmon and Segro. That’s hardly surprising – both are highly cyclical businesses that look vulnerable in a recession.

Should you invest £1,000 in Marshalls Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Marshalls Plc made the list?

See the 6 stocks

Persimmon is a housebuilder. Demand for properties tends to contract in a recession, which is why the prospect of an economic downturn has been bad for the stock price.

Segro owns and leases industrial real estate. Lower economic activity might cause some of its tenants to struggle to pay their rents, while also weighing on the value of the company’s assets.

But despite rising interest rates and high inflation, a recession doesn’t seem to be imminent. In fact, the Office for National Statistics recently revised estimates about the UK’s output at the end of last year.

Economic activity in the third quarter of 2022 was upgraded from -0.2% to -0.1%. And the fourth quarter is now thought to have seen growth of 0.1%, rather than the flat performance previously reported.

That means a recession – defined as two consecutive quarters of negative economic activity – isn’t imminent. The earliest the UK could officially be in a recession is at the halfway point of this year.

More generally, things seem to have been going better in the UK than previously thought. In particular, the construction sector is estimated to have grown by around 1.3% at the end of last year. 

So might of the pessimism around property stocks has been unwarranted? And if so, might this be a rare opportunity in shares that have been falling in anticipation of a recession?

Outlook

Good news about the broader economy is generally good news for both Persimmon and Segro. But the question of whether or not these are now stocks to buy is a little more complicated.

I think there are still significant headwinds for both of these businesses. Even with a recession ruled out, there’s still high inflation and rising interest rates to deal with. 

This looks like a particularly challenging combination for Persimmon. High inflation makes materials more expensive and rising interest rates dampen the property market, making it harder to pass on these costs.

The company also reduced its dividend by 75% at the start of the month. I’m therefore not expecting significant shareholder returns in the near future.

With Segro, things are a little different. The rental market for industrial properties is still fairly strong, despite the value of its assets falling. 

There’s also an argument to be made that inflation might be beneficial for the company. Higher prices makes it more expensive for competitors to set up their own warehouses.

Overall, I think the recent news makes Segro look more attractive than Persimmon. I’m looking seriously at the recent declines as a chance to buy the stock for my portfolio.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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 assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Up another 6% in the last week! Is the BP share price ready to go gangbusters?

The BP share price has been on fire lately. Harvey Jones looks at what's driving the FTSE 100 stock's recovery,…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

High-flying IAG shares are up 50% in 3 months but I still think they’re too cheap to ignore!

Timing the market is almost impossible but Harvey Jones managed it when buying IAG shares in April. Can the FTSE…

Read more »

ISA coins
Investing Articles

Want to earn £1k+ in annual passive income from a £20k Stocks and Shares ISA? Consider this!

Our writer sets out some points to consider when trying to target a four-figure income from one year's Stocks and…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

3 risks to the Rolls-Royce share price, after its 979% climb

After a 979% growth in the Rolls-Royce share price, our writer still sees things to like in the business. But…

Read more »

Buffett at the BRK AGM
Investing Articles

Can Warren Buffett principles help when looking for AI stocks to buy?

Billionaire Warren Buffett has made a fortune by applying old investing principles to new industries. Can our writer learn some…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Up 36% in 3 months! Is my nightmare purchase of Glencore shares about to come good with a vengeance?

When Harvey Jones bought Glencore shares two years ago, he didn't expect to find himself sitting on a 45% loss.…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

£1,000 invested in Lloyds shares 5 years ago is now worth…

Anyone who’s owned Lloyds shares over the last five years is probably laughing right now with impressive returns that crushed…

Read more »

A mature woman help a senior woman out of a car as she takes her to the shops.
Investing Articles

If a 50-year-old puts £500 a month into a SIPP, here’s what they could have by retirement

Investing £500 a month with a SIPP could build a pension pot worth £269,900 or quite a bit more over…

Read more »