Stock pickers are going back to basics as the threat of a new global financial crisis increases appetite for staples. That trend is helping companies such as Al Marai, the region's largest dairy producer by market value, and Jarir Marketing, a Saudi bookstore chain and computer distributor.
"We recommend a more defensive sector allocation," said Tariq Al Alaiwat, an analyst at NCB Capital, a Saudi investment bank.
"People are not going to stop buying milk or stationery because there's a European debt crisis or Greece is going to default," Mr Al Alaiwat said.
The euro weakened to a one-decade low against the yen, and commodities markets witnessed a sell-off led by copper, oil, gold and silver on concerns that the European debt crisis would not be contained. Asian markets declined, with Gulf stocks posting losses for the second day this week.
The focus on defensive stocks is part of a wider trend among analysts worldwide.
JPMorgan yesterday said Coca-Cola was among 26 stocks that might return more than the market if US equities drop as they did after the collapse of Lehman Brothers in 2008.
Al Marai, which supplies milk to most supermarket chains across the Gulf, has expanded its product range to include poultry and bread.
The stock trades at 15.7 times price to earnings. The company was launched in 1976 by Saudi Prince Sultan bin Mohammed bin Saud Al Kabeer, who continues to lead the company. It went public on the Saudi Tadawul in 2005 and now has a market capitalisation of US$6.9 billion.
Jarir, which has a strong position in books, and office and school supplies, trades at 16.3 times price to earnings. The company should benefit from Saudi Arabia's rising population, improving education and modernising lifestyle. Jarir reported a nearly 30 per cent jump in net profit in the second quarter to 98.5 million riyals from 75.8m riyals a year earlier.