Looking for shares to buy for Brexit and the general election? Here’s how you could beat the FTSE 100!

This market sector could survive Brexit and political chaos, writes Thomas Carr.

| 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.

With Brexit and a general election looming, the level of uncertainty in the UK seems unprecedented. As investors, we need to think carefully about what we invest in, and how our investments would hold up in the event of an economic slowdown.

One sector that has shown a remarkable resilience over the years is the luxury sector. Customers in this sector are typically wealthier and higher earning than the UK average – known as high net worth individuals – and are less likely to be affected by a downturn.

The nature of the market also provides a good buffer. Luxury markets are often characterised by far greater demand than supply, which protects pricing and sales, even in adverse conditions. The fact that many luxury products represent emotional, rather than rational purchases, along with the brand strength of the leading players, also adds to the resilience of the sector.

Luxury watches

Watches of Switzerland Group (LSE: WOSG), which listed on the London Stock Exchange earlier this year, specialises in selling luxury watches in the UK and US. It is the market leader in the UK, where it sells nearly £600m worth of luxury products. Group sales have grown by around 20% annually over the last five years, a trend which continued into the current financial year, where sales rose nearly 18% in the first quarter, compared to the prior year.

The luxury watch retailer now has 128 showrooms, recently opening two flagship stores in central New York. A quarter of the group’s sales now come from the US, where sales have more than doubled in the last year, and look set to grow strongly for the foreseeable future.

If investing was just a case of picking companies that will grow, then this would be a no-brainer. I think business performance is only going to improve, in terms of sales growth and widening profit margins. Furthermore, I think sales will hold up, whatever happens in the wider external environment.

But I have a problem with the valuation. The shares trade on a price-to-earnings ratio (P/E) of over 30 times, even when using an adjusted profit figure. When this is combined with a high debt level, I find it unlikely that the shares will push on much from here any time soon.

Luxury fashion

Staying within the luxury sector, I think Burberry Group (LSE: BRBY) is a better option.

Since hiring a new chief creative designer last year, the brand has made a conscious move to become more upmarket. The move has gone down well with customers, with new collections achieving double-digit sales growth in the first half of the year.

Total revenue was up by 5% in the first half, and net profit rose by 13% from the prior year. Revenue even increased in the Asia Pacific region, which is amazing considering the disruptions in Hong Kong – one of the main luxury markets in the world.

As well as boasting stable revenues and profits, Burberry also achieves an impressive return on capital employed of 20%. With a P/E ratio of around 23, I think the shares have the potential to perform well in the short and medium term.

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.

Thomas has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is the Centrica share price a compelling value play?

I'm always on the lookout for investments that might be undervalued, but is the Centrica share price as cheap as…

Read more »

Investing Articles

Down 88% since its peak! Is this one of the best UK shares to buy now?

I see lots of potential shares to buy on the UK stock market right now, but I don't see explosive…

Read more »

Investing Articles

Should investors be looking at the Barclays share price?

The Barclays share price has been in rally mode lately, but is the best still to come for new investors?…

Read more »

Investing Articles

Here’s what Stocks & Shares ISA investors are buying today!

ISA investors are piling into these UK and US stocks. But which could be the best buy right now? Royston…

Read more »

Investing Articles

2 powerful passive income stocks investors should consider snapping up

Building a passive income stream via dividend-paying stocks is possible, according to our writer, who details two picks to take…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing For Beginners

This UK stock has gained 42% since I bought it, but I think it’s still a bargain

Jon Smith outlines his reasons for thinking that a UK stock he owns has the potential to keep rallying for…

Read more »

Investing Articles

1 under-the-radar value stock I’m eyeing up for returns and growth

This Fool is looking for quality stocks at bargain prices and reckons this potentially overlooked value stock could be a…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

National Grid shares have plunged — but if I’d bought 2 years ago, would I be in profit?

National Grid shares are about 22% lower than in May, but that may just be a small blip for long-term…

Read more »