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2 Christmas crackers to beat your Brexit blues

Photo credit: Eluveitie

Thanks to June’s shock referendum result and Donald Trump’s surprise win, some investors are getting increasingly nervous as 2016 draws to a close. This is unfortunate. I think some stocks that are likely to do rather well in the run-up to Christmas and beyond. Indeed, given yesterday’s news that retail sales grew by their fastest annual rate in 14 years in October, there are two in particular that I feel warrant attention.

Supercharged

In contrast to a lot of clothing retailers with a high-street presence (step forward Next and Marks and Spencer), things seem to be going rather well at FTSE 250 constituent Supergroup (LSE: SGP). A recent trading statement from the £1.24bn cap, Cheltenham-based company contained some very encouraging figures. Thanks to sterling’s recent weakness and the company’s global footprint, group revenues were up just over 31% for the 26 weeks to 29 October. Like-for-like sales were also up 12.8% compared to the same period in 2015. Perhaps most importantly given the need for retailers to offer a quality online experience, Supergroup also reported growing sales from its e-commerce platform.

But there are other things to like about the company and its shares beyond this month’s update. Supergroup has managed to generate decent returns on capital and consistent, double-figure annual earnings growth since 2012. With over £100m cash in the bank, the balance sheet also looks robust. A well-covered yield of just 1.71% for 2017 isn’t much to write home about but this is likely to increase at a decent rate over the coming years. To cap things off, the company doesn’t appear to suffer from the same negative sentiment as its aforementioned retail peers.

With a forecast price-to-earnings (P/E) ratio of just over 18 for 2017, I think Supergroup’s shares are reasonably valued at the current time.

Reasons to be cheerful

If Supergroup has had a decent year, it’s nothing in comparison to that experienced by owners of AIM-listed online giant, boohoo.com (LSE: BOO). Priced at 33.5p on this day in November 2015, shares have been on a relentless charge upwards thanks to a series of incredibly positive updates from the company. Anyone who had the foresight/fortune to invest a year ago would have enjoyed watching their capital multiply 350%. That’s an incredible return in anyone’s book.

Thanks to its low-cost, pure-play online business model, huge popularity among teenagers and young adults and recent high-profile marketing campaigns, I remain confident that boohoo will win many new customers in the run-up to Christmas and in the inevitable sales period that follows. However, I’m even more optimistic about the company given what’s highly likely (though never guaranteed) to happen in the early part of 2017, namely its acquisition of PrettyLittleThing — the online company run by the son of boohoo director, Mahmud Kamani. Although anticipation of this deal is probably already priced in to some extent, I suspect the shares will rise further if and when this news is confirmed.

Boohoo’s current valuation will no doubt scare off a lot of investors, particularly those focused on finding value. On a forecast P/E of just under 69 for 2017, it’s way ahead of Supergroup’s and even higher than that of ASOS (64). Nevertheless, P/E values become somewhat less important when looking at businesses growing at hyperspeed and this is certainly the case with the Manchester-based company.

Brexit-proof your portfolio

Recent results and strong fundamentals suggest that Supergroup and boohoo.com will go from strength to strength in 2017, regardless of the manner in which the UK leaves the European Union. Sadly, the same can't be said for other stocks.  

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Paul Summers owns shares in boohoo.com. The Motley Fool UK has recommended boohoo.com and Supergroup. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.