To quote Warren Buffett, the best time to buy equities is usually to be greedy when others are fearful. Following the Brexit vote, fear now dominates the market, which means it could be the perfect time to go bargain hunting.
Safety in catering
Shares in Marston’s (LSE: MARS) are down by 9% since the beginning of last week, tracking the wider market lower. However, it’s unlikely that the company’s underlying business will be seriously impacted by Brexit in the near term.
Marston’s business may face pressure if there’s a recession during the next few years but after recent declines, the shares trade at an attractive forward P/E of 10.5 and support a dividend yield of 5.2%. That valuation compensates for any Brexit risk.
International insurance giant
Prudential (LSE: PRU) is also down by 9% since the beginning of last week. After these declines, shares in the fast-growing international insurance group trade at one of the lowest valuations of the past five years. Prudential’s shares currently trade as a forward P/E of 10.5, compared to the five-year average of 13. The shares support a dividend yield of 3.4%. Further, in the run-up to the vote, Prudential’s management announced that the company generates 87% of its business outside the EU, and the impact of a Brexit vote would be “manageable”.
Could come out stronger
Next (LSE: NXT) and Sports Direct (LSE: SPD) have lost 17% and 22% of their market value, respectively, since the beginning of last week. At first glance, the declines seem rather irrational. These retailers aren’t going to lose all of their customers overnight, and both companies have a history of successfully managing their way through economic turbulence. Next and Sports Direct both exited the financial crisis in a stronger position than they were in when the crisis first took hold.
Shares in Sports Direct currently trade at a forward P/E of 9.9 after recent declines. Next trades at a forward P/E of 12.1 for the year ending 31 January 2017. City analysts expect Next’s shares to support a dividend yield of 7.3% this year as management returns cash to investors via special dividends.
Still, Sports Direct has warned in the past few days that due to sterling volatility, the company’s profit might not expand next year. Next’s boss Lord Wolfson — who backed the Brexit campaign — commented over the weekend that Next had already accounted for a potential consumer downturn following a Brexit vote yet he saw “no logical reason” for the Brexit vote to hit consumer spending.
Travel worries
Shares in Thomas Cook (LSE: TCG) have been under pressure for much of the past year. Over the past 12 months, the company’s shares have fallen by 60% and over the past five days, the company’s shares have fallen by 12%. Investors are concerned about Thomas Cook’s outlook due to the fact that weaker sterling is likely to put holidaymakers off travelling outside the UK and extremist attacks across the Middle East will weigh on the company’s holiday bookings as it has a large exposure to Egypt.
While these concerns are valid, Thomas Cook’s shares just look too cheap to pass up. The shares currently trade at a forward P/E of 7.2, support a dividend yield 2.3% and City analysts expect the company’s earnings per share to grow by 26% for the year ending 30 September 2017.
