Which stocks benefit from a weak pound?

At least ARM Holdings plc (LON: ARM), British American Tobacco plc (LON: BATS) and Diageo plc (LON: DGE) have reasons to celebrate Brexit, says Harvey Jones

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Not every UK stock fell victim to Friday’s Brexit bloodbath. Some kept their heads to end the day higher, which suggests they are nicely placed to survive the forthcoming economic and political uncertainty. 

Safe havens

The biggest winners from Friday’s meltdown came as no surprise. Precious metal miners Randgold Resources (up 14%) and Fresnillo (up 12%) were inevitable beneficiaries of the global chaos triggered by Brexit, as investors rushed for the comfort of a familiar safe haven.

Friday’s next best performer was microchip maker ARM Holdings (LSE: ARM), which saw its share price rise a panic-defying 6.48% on Friday. This partially reversed recent losses that followed reports of the iPhone’ first ever quarterly decline in sales. With the pound plunging, ARM’s royalty revenues could bounce more than 10% once they are converted back into sterling.

The downside is that at 44 times earnings, ARM has to keep growing rapidly to justify its pricey valuation. But at least Brexit offers as much of an opportunity as a threat.

Smoke across the water

Contract caterer Compass Group was another Brexit winner, up more than 4% on Friday, as its rising global earnings from markets in the US, Latin America and Asia will convert nicely into weaker sterling and counteract the recent slowdown in its emerging markets territories.

Pharmaceutical giants GlaxoSmithKline and AstraZeneca also rose around 4% on Friday and continued rising on Monday, as investors looked for safe ports in the UK’s storms, especially ones offering well-diversified global earnings.

And can nothing stop British American Tobacco (LSE: BATS)? It’s one of the best performing FTSE 100 stocks of the past 10 years, with its share price chart curling upwards as inexorably as smoke from a Lucky Strike. It rose 3.17% on Friday, and 1.61% again on Monday. Smoking kills, but it does offer your portfolio life-enhancing qualities.

British American Tobacco has been fighting currency headwinds in recent years, as 70% of its sales are made in emerging markets, where currencies have fallen sharply against the dollar. So at least Brexit means it can now look forward to a currency tailwind for a change. The price of this success is a high valuation of 21.33 times earnings and so-so yield of 3.46%, but history suggests that’s a price worth paying.

Raise a glass

Global spirits giant Diageo (LSE: DGE) has suffered a three-year hangover following the departure of former chief executive Paul Walsh, but Brexit has handed it a much-needed hair of the dog, again, courtesy of the plunging pound. Thirsty investors immediately grabbed the opportunity, with the stock up 3% on Friday and another 1.92% on Monday.

Diageo has also been hit by the emerging market slowdown and falling local currencies. The disappointing 2% drop in organic sales in North America in the second half of last year will now be offset by a more than 10% surge in the value of its dollar earnings. Earnings per share have fallen in the last three years but that looks set to reverse, with a forecast rise of 8% in the year to 30 June 2017. Even at 21.6 times earnings, Diageo looks a tempting buy for the first time in several years, so even the most ardent pro-Remain investors can raise a glass to Brexit.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended ARM Holdings, AstraZeneca, and Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »