The best "tin hat" stocks for picky investors

Professional investors are supporting so-called "tin hat" stocks in companies that are expected to perform well even in the face of the most unstable macroeconomic conditions

We examine four of their favorites.

With Bloomberg estimating that Trump's tariffs will cost the world economy £2 trillion by 2027, some fund managers think investors are underestimating the long-term impact of geopolitics and protectionism. Nevertheless, some businesses could succeed in any case.

It has been reported that several fund managers are covertly holding large cash positions despite the markets reaching all-time highs, which is a classic indication of anxiety. While markets may be reaching all-time highs, so is investor uncertainty, according to Darius McDermott, managing director of fund research firm FundCalibre.

"Caution is necessary with that combination. Trump's tariffs are still having long-term effects, damaging trust in the US as a reliable investment partner and upsetting supply chains. According to him, the winners of the upcoming decade might not resemble those of the previous one as global alliances change.

So where should cautious investors go? According to McDermott, there is an increasing demand for boring but reliable funds and assets, also known as "tin hat stocks," which are robust, low-correlation businesses that managers think will perform well regardless of the broader macro volatility.

For cautious investors and uncertain times, BFIA asked a group of fund managers to select their favorite tin hat stocks.

A separate article examines the top investment platforms.

Invest in stocks when growth slows.

1. Michelin

Businesses with long-lasting competitive advantages in specialized, recurring-demand markets are one kind of business to seek out when the outlook is uncertain. like Michelin.

Daniel Avigad, fund manager for the European Special Situations Strategy at Lansdowne Partners, gave an explanation of his investment in the tire manufacturer.

He asserted that tires are a recurring demand product, which means that car owners need replacements regardless of the state of the economy, generating more steady income.

"It has pioneered nearly all major tyre innovations of the past century and consistently invests 1.5 to six times more in research and development (R&D) than competitors," he continued, adding that Michelin stands out for its strength as a brand, global reach, and technological leadership.

The importance of research and development has been further emphasized by stricter regulations and the rise of electric vehicles, which call for tires with improved safety, durability, and energy efficiency due to their increased weight.

Through premium pricing power made possible by that innovation, the business is able to protect margins and offset the inflation of input costs. We look for certain qualities in a successful company, and Michelin exemplifies them," Avigad said.

2. Republic Services

. Because we all require basic services like waste management and water, these sectors are among the most defensive in the market. Due to their stable prices and sustained demand, these companies primarily function locally, which significantly reduces their vulnerability to tariffs and geopolitical upheavals.

The Regnan Sustainable Water and Waste strategy's fund manager, Saurabh Sharma, has investments in Republic Services (RSG), a US company that offers recycling and non-hazardous solid waste management services.

Sharma added that RSG offers mid-single-digit organic growth in addition to acquisition contributions, and that the company's recurring business model "provides stable revenue streams, fostering resilience to economic downturns."

RSG's leadership in sustainability and technology is further supported by investments in landfill gas-to-energy projects and advanced recycling.

"RSG balances shareholder returns with reinvestment in innovation and operational efficiency through consistent capital allocation, strong free cash flow, and a prudent dividend policy," Sharma stated.

The stock is also experiencing a rerating, which is a rise in share price that indicates that the market's assessment of the company's prospects for the future has improved.

3. MHA

The UK accounting services company is called MHA. Its audit and tax services, which are essential for the companies it serves and create steady demand, account for more than 85% of its recurring income. Pricing, cross-selling, regulatory changes, and consolidation support its multi-year growth in this robust market.

MHA's high profitability and cash generation, which it uses to enhance its operations through technology, automation, and offshoring, have won over Brendan Gulston, co-manager of the WS Gresham House UK Multi Cap Income fund.

As part of MHA's initial public offering (IPO) earlier this year, Gulston made an investment at a single-digit enterprise value to EBITDA multiple, which he described as "representing a significant discount to private equity transactions at low to mid-teens multiples."

Gulston stated that MHA has a strong case because of its "strong net cash balance sheet, high margins and cash generation, high quality recurring revenues, structural organic growth drivers, and an undemanding valuation."

Additionally, he appreciated that MHA appears to have the ability to add more acquisitions that can be integrated into the platform.

4. La Loreal

A superior portfolio of brands across price points, categories, and regions, significant marketing and product development expenditures supported by a gross profit margin of more than 70%, and a stellar track record are just a few of the many advantages that LOreal offers.

Rob Strachan, the deputy portfolio manager of the Evenlode Global Income fund, has invested in the beauty giant because, like now, it benefits both literally and figuratively during difficult economic times.

"While revenue growth has recently been curbed, LOreal remains resilient due to a general consumer slowdown driven by inflation and higher interest rates," Strachan explained, adding that consumers cut back on large discretionary spending but increase spending on small, affordable treats as a much-needed boost to morale.

In the long run, he noted, the company should profit from the growing demand for younger-looking products due to aging populations, expansion into underserved markets like India, and the move toward more sophisticated, science-based beauty routines and products.

Strachan stated, "I can attest to the fact that male beauty is also a big opportunity, as there is a lot of room for men to be more attentive to the finer points of their appearance."