Consumer ‘staples’ Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) and Imperial Brands PLC (LSE:IMB) should stand firm in tough times according to broker RBC Group, which has them as recession stock picks.
The investment bank said that “with a relatively resilient portfolio in the event of wider economic unpredictability, we believe Reckitt is undervalued”.
Shares in Reckitt, which owns pharmaceutical brands such as Dettol, Gaviscon and Strepsils as well as household products like Air Wick, Durex and Clearasil, are currently trading at 6,047p.
RBC expects them to rise to £70 per share, the price where it sees they would represent fair value. I
Analysts at the bank added they are puzzled by the current valuation arguing Reckitt is a “much improved” business compared to three years ago.
Imperial Brands, too, is “significantly undervalued”, said the investment bank, which expects the company to outperform the market with a price target of £22.
The tobacco seller’s shares are currently trading at 1,830p per share, after climbing 14% in the past year, though they are still trading well below their peak in 2016.
Despite the obvious environmental, social and governance challenges facing the tobacco sector, RBC analysts expect the company’s share price to benefit from a share buyback programme due to start later this year.
UK drinks maker Diageo PLC (LSE:DGE) is meanwhile expected to underperform the market as analysts do not expect the surge in demand for spirits to recur.
"Indeed, if our fears of a consumer recession are realised... we think premium spirits will suffer more than other constituents of the consumer staples sector: a business model based around consistent and significant price-mix growth looks vulnerable to us," RBC said.