Investors should own four stocks this Christmas

This year has been a brutal year for the stock market, but December could bring some seasonal cheer to investors.

Historically, December has been the strongest track period for stocks. Analysis by investment platform Bestinvest showed that there was a 75 percent chance that global company stock prices would rise in December over a 50-year period.

That was more than in any other month. Experts attribute the so-called “Christmas rally” to increased spending during the holiday season and investors shifting their money in anticipation of a better year.

As investors look to capitalize on the seasonal upswing in markets, Telegraph Money asked experts about their top stocks this festive season.

Diageo

With households counting every penny, convincing shoppers to part with their money is a challenge for many businesses this Christmas.

David Henry of wealth manager Quilter said that’s why a strong brand is vital and he commends Diageo, owner of one of the widest and most well-known collection of premium beverage brands in the world, which includes Smirnoff vodka, Johnnie Walker whiskey, Gordons gin and Don Julio Tequila.

“Despite the deteriorating economic outlook, industry data shows little evidence that consumers are reducing their preferences when it comes to spirits,” Henry said, “and Diageo has a healthy exposure to US consumers, who appear to be more resilient in the current environment than for example, their Chinese equivalent.”

Diageo also owns 34 percent of French luxury goods company LVMH’s Moët Hennessy beverage division, which includes brands such as Moët & Chandon, Dom Pérignon and Hennessy.

Mr Henry said while a luxury conglomerate that sells champagne and designer fashion may not be an obvious stock pick in a recession, LVMH has “established a track record of outperforming in the bad and good times for the consumer”. It posted a 19 percent year-over-year jump in revenue in the most recent third quarter.

The performance of luxury goods is also usually not an indicator for the economy as a whole. Mr Henry said their affluent customers’ spending patterns “do not fully align with the broader macro environment and purchases are often emotional, driven by brand desirability”. Despite the risk of a global recession, the luxury goods sector is expected to grow by 3 to 8 percent over the next year, analysts at Bain & Co and Altagamma recently forecast.

Disney

Rob Burgeman of Brewin Dolphin, an asset management firm, said Disney is “the ultimate Christmas stock” for him.

During the holiday season, the film company is thriving on everything from theatrical screenings to video games to princess dresses — and “smart acquisitions” of LucasArts, Pixar, and Marvel in recent years have further expanded its reach across consumer brands.

However, despite record sales of $83bn (£68bn) last financial year, profits fell short of analysts’ expectations. Mr Burgegman said the pandemic “has had a significant impact on Disney, with delays in their film business and the closure of their parks and resorts” but this is a great opportunity to buy “a portfolio of fabulous brands” at a huge discount. “Over five years, stocks are down 8 percent in dollar terms and down 30 percent over a year.”

Rentokil

A pest control company might not fill investors with Christmas cheer. However, according to Garry White of wealth manager Charles Stanley, Rentokil – which deals with rat, mouse and flea infestations and also offers moisture protection and woodworm treatment – is well positioned to withstand an economic downturn that could follow next year.

The group’s total revenue is up a double-digit 19 per cent year-on-year and Mr White said there were several opportunities for the company to surprise the market in 2021. “The company has always had a knack for making good bolt-on acquisitions in the fragmented market in which it operates,” he said.

“During the quarter, the acquisition of Terminix was completed, a transformative purchase that has made the company the US leader in its sector. Terminix just reported its best quarter since 2016 and the delivery of cost synergies is off to a good start.”

experiential

Experian looks like an unlikely stock pick for 2023. If the UK faces a long recession, as the Bank of England is forecasting, then it’s likely that lower mortgage demand will also hurt demand for the company’s credit reporting services.

But even with a downturn on the horizon, Mr. White believes the company can weather the storm. “The company continues to expand and diversify, particularly in emerging markets like Brazil and with the launch of new products like decision-making tools,” he said.

Developing analytical tools for companies means the company is much more than a credit checker, Mr. White said, and puts the company in a strong position. In the first half, business-to-business revenue grew 7%, driven primarily by the company’s data and decision-making divisions.

“This area appears to be counter-cyclical as it focuses on enabling companies to use data analytics to make decisions quickly and cost-effectively – and helping them reduce costs. Future returns will be underpinned by the increasingly important and expanding use of data and data analytics.”

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