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As markets plunge, investors are hunting for lifejackets. Sadly, there are few. Confidence in consumer goods, long considered pretty robust, was knocked this month when Unilever dumped its 2009 forecasts. After all, formed weeks before the 1929 crash, it knows about downturns. Fats and oils, moreover, plus chocolate and tobacco, were resilient during the Depression.

Peers including Procter & Gamble, Kraft, Diageo and L’Oreal also disappointed during the recent earnings round. Even the most upbeat, Nestlé and Reckitt Benckiser, reported slowing previous-quarter organic sales growth. In fairness, all these groups still forecast rising sales and earnings. But consumer goods makers juiced their growth in recent years by selling “innovative” higher-margin products and conquering emerging markets. Shoppers are now buying fewer of them or are trading down to supermarkets’ private-label goods. And multiples of forecast 2009 earnings from 12 times (Unilever) to above 15 (Reckitt) now look stretched.

Ports in a storm

As in the Depression, cheap treats – and vices – still look solid. Tobacco is vulnerable to US litigation but demand is robust. British American Tobacco is among fewer than a dozen UK stocks to have risen since the credit crunch bit in August 2007. Fast food is sizzling, with McDonald’s among the few US gainers over 18 months. Cheap retailers are buoyant, too. Wal-Mart’s shares are up over 18 months while the best-performing S&P 500 stock over the past year is cut-price Family Dollar Stores.

Utilities, well represented among top risers, should be safe, and benefit from infrastructure spending. But high leverage and refinancing needs could lead some UK utilities to cut capital spending and dividends.

That leaves pharmaceuticals – among the top performing sectors but on p/es often below consumer goods groups. Little wonder GlaxoSmithKline has outperformed in recent days. In a “normal” recession, investors would be switching to stocks set to gain from an upturn. But, with so little clarity on when the upturn might come, the defensives case still stands.

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