Investors should consider "compounders" that might not necessarily be operating in especially interesting or high-growth end markets, said Barclays, identifying several companies among the UK mid- and small-cap scene, including Greggs, Halma and 4imprint Group.
"As a team, we are regularly asked by investors what stocks we would recommend if the market were closed for several years, and we could not trade," said analysts Richard Taylor and Pallav Mital in a note to clients on Friday.
Compounders are high-quality businesses with growing revenue streams and a track record of double-digit total shareholder return (TSR), they explained.
"These companies tend to have pricing power and significant moats around their businesses, driving sustainably strong margins and returns on capital," they added, that some "may not appear to have especially interesting or high growth end markets, but are often exceptionally strong within their niche and have a track record of market share gains".
Such businesses should remain relatively robust through economic downturns, owing both to their robust cash flows, and conservatively managed balanced sheets, the analysts added.
There were 10 stocks from the UK small and mid-cap (SMID) scene that met all four of their selection criteria: a total shareholder return over 10% on a five-year average, a return on invested capital above 10% between 2013 and 2022, revenue growth over 5% over five years on a compound annual basis, and net debt/EBITDA below 1.25 times.
While this group picked out a "good starting point", the analysts said investors can screen by similar metrics themselves.
Those that met all four included a number of business software specialists, along with others exposes to corporate spend and several retailers.
The 10 were promotional products specialist 4imprint Group Plc (AQSE:FOUR), software developer Bytes Technology Group PLC (LSE:BYIT, JSE:BYI), homewares retailer Dunelm Group PLC (LSE:DNLM), sausage roll chain Greggs, sportswear retailer JD Sports Fashion, health and safety products conglomerate Halma PLC (LSE:HLMA), kitchens retailer Howden Joinery Group (LSE:HWDN), software maker Softcat (LSE:SCT), steam and fluid engineer Spirax-Sarco Engineering (LSE:SPX) and retailer Watches of Switzerland Group PLC (LSE:WOSG).
"We believe many of these stocks are clear candidates to be core holdings within SMID portfolios, or attractive holdings for fund managers with broader benchmarks," the Barclays analysts said.