It’s been a long, hard road but the UK economy is finally back to the same size as it was prior to the credit crunch. Indeed, today’s GDP numbers came in bang on target at 0.8% for the second quarter of the year and, with the IMF raising the UK’s growth forecast for the year to a heady 3.2%, here are three companies that could benefit from an upsurge in economic activity in the UK.
Although Wm. Morrison (LSE: MRW) has focused on its pricing in recent months, with the supermarket cutting a range of prices so as to try and compete with discount retailers, an upsurge in the UK economy could be a major benefit to it. That’s because Wm. Morrison has invested heavily in its supply chain and has focused on providing fresh, quality produce within its own brands. Certainly, this has apparently been lost on UK shoppers in recent years, as they have become obsessed with the cost of everything. However, increased economic activity means increased wealth, which in turn could switch the focus of shoppers back to quality rather than price. In that case, Wm. Morrison, trading on a price to earnings (P/E) ratio of just 11.8, could be a winner.
It’s a double celebration for shareholders in RBS (LSE: RBS) today, as the bank reported better-than-expected second quarter results to complement the UK’s new GDP highs. Indeed, a resurgent UK economy has been a major reason why RBS has made a profitability comeback this year, with the bank forecast to return to the black for the first time since the credit crunch began. That’s because an improved UK economy means more loans, fewer bad loans and less asset write-downs; all of which make a positive impact on RBS’s bottom line. Trading on a price to book ratio of just 0.4, RBS still screams value even after today’s rise in its share price.
Although its sales are mostly generated outside of the UK, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) could still benefit from a wealthier UK. That’s because more wealth means more capital to invest in shares, with undervalued stocks such as GlaxoSmithKline that offer a great dividend yield likely to be among the most popular. Indeed, GlaxoSmithKline currently yields a highly impressive 5.7% and trades on a P/E of just 14.1. With a highly diversified and impressive drug pipeline, GlaxoSmithKline could attract investors and rebound from the year lows that it is currently experiencing to post strong gains going forward.
Peter Stephens owns shares of GlaxoSmithKline, Morrison, and Royal Bank of Scotland Group. The Motley Fool recommends GlaxoSmithKline.