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London is having more than its share of problems - but that doesn't mean you should turn away from British stocks.

Okay, maybe you need a stomach of steel to approach anything in the financial sector these days, or many other stocks whose fortunes are predicated on a stable economy. However, Britain is home to a wonderful collection of economically defensive stocks, many of which have developed impressive reaches into the far corners of the global economy, making them much more than British stocks.

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Indeed, the FTSE 100 - an index of the 100 largest stocks listed on the London Stock Exchange - is arguably the world's most internationally diversified collection of stocks outside the S&P 500. This is important if you want to gain access to some of the faster-growing economies without actually stepping into some of the murkier markets out there.

For example, take a took at Unilever PLC, the world's second-largest packaged goods company, with brands such as Becel, Lipton, Sunlight, Pond's and Dove. The stock hit a 21/2-week low in London Friday, and has fallen about 22 per cent this year alone, as frightened investors continue to shun even those stocks that are best positioned to withstand a deep global recession.

Their loss. Unilever's sales are evenly distributed across Europe, North America and Asia. More important, the company is a money-making machine, with a return on equity ratio of 45 - amazingly high. And yet, the stock's trailing price-to-earnings ratio is a mere 7.3, ultracheap next to Procter & Gamble's P/E ratio of more than 12.

Meanwhile, investors are paid to wait out the economic storm, with the stock's dividend yielding 4.4 per cent. You can buy this stock on the New York Stock Exchange, where it trades as an American depositary receipt (ADR) under the ticker symbol UL.

Diageo PLC is another great U.K. stock, although it is probably best known for its stable of alcoholic beverages sold round the world: Smirnoff, J&B, Johnnie Walker, Captain Morgan and Guinness.

Alcohol consumption remains relatively stable, even when the economy is suffering, since people treat themselves to pick-me-ups when they give up other luxuries such as vacations, new cars and even meals in restaurants.

You wouldn't know it from Diageo's share price, though: It hit a four-year low on Friday - one month after the company lowered its profit forecast but nonetheless estimated that operating profit for the fiscal year would rise 4 to 6 per cent over from year. (The stock trades on the NYSE as an ADR under the ticker symbol DEO.)

The stock is attractive just about any way you look at it. In terms of valuation, its P/E ratio is just 11. In terms of profitability, its return on equity ratio is above 40. Meanwhile, it has a dividend yield of 4.8 per cent - rewarding you with a decent payout as you wait for the market to come to its senses.

Follow on Twitter: @dberman_ROB

 

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