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

I think this could be a good time to buy UK stocks. Recessions occur on average once every 10 years and are often accompanied by falling stock prices, providing opportunities for enterprising investors to find bargains.

But what’s better than a recession? Avoiding one when everyone is expecting one and marking the share price – that’s why I see this as a real opportunity in UK stocks today.

Recession canceled?

The two worst-performing FTSE 100 Share over the last 12 months already persimmon and secret. Not surprising – both are cyclical businesses that seem vulnerable during recessions.

Persimmon is a homemaker. Property demand tends to contract in recessions, so the prospect of an economic downturn is already bad for stock prices.

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

But despite rising interest rates and high inflation, a recession is not in sight. In fact, the Office for National Statistics recently revised its estimates of UK output at the end of last year.

Economic activity in the third quarter of 2022 was improved from -0.2% to -0.1%. And the fourth quarter is now considered to have grown by 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 recession is the middle of this year.

In general, the situation appears to be better in England than previously thought. In particular, the construction sector is expected to grow by around 1.3% at the end of last year.

So, is pessimism about property stocks out of the question? And if so, could this be a rare opportunity in stocks that have fallen in anticipation of a recession?

Outlook

Good news about the broader economy is generally good news for Persimmon and Segro. But the question of whether this is now a stock to buy is more complicated.

I think there are still significant headwinds for both businesses. Even if a recession is out of the question, there will still be high inflation and rising interest rates.

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 more difficult to pay these costs.

The company also cut its dividend by 75% at the beginning of the month. Therefore I do not expect significant shareholder returns in the near future.

With Segro, the situation is a little different. The rental market for industrial properties is still quite strong, despite the decline in asset values.

There is also an argument to be made that inflation can be beneficial to companies. Higher prices make it more expensive for competitors to set up their own warehouses.

Overall, I think this new news makes Segro look more attractive than Persimmon. I am seriously looking at the recent decline as an opportunity to buy stocks for my portfolio.