The Motley Fool

3 Brexit ‘buys’: AstraZeneca plc, Compass Group plc and Severn Trent plc

One of the appealing aspects of buying utility stocks such as Severn Trent (LSE: SVT) is their performance during crises. In such periods, investors normally switch from a risk-on attitude to a risk-off one and seek out safer places to invest their capital. Utilities, with their robust earnings outlooks and stable business models, have huge appeal. Therefore, it’s of little surprise that Severn Trent’s shares have outperformed the FTSE 100 since the EU referendum.

Looking ahead, further outperformance could be on the cards. That’s because the outlook for the UK economy is highly uncertain and the trend described above may continue over the medium-to-long term. Furthermore, Severn Trent could also be viewed as a more obvious bid target in the coming months as the value of sterling plummets and it becomes cheaper and therefore more attractive for foreign bidders to acquire the water services company.

As well as a defensive profile and bid potential, Severn Trent also has a beta of just 0.7. This indicates that it offers a less volatile shareholder experience, thereby increasing its appeal in a post-Brexit world further still.

Navigating through tough times

Also offering a highly defensive profile is food services business Compass Group (LSE: CPG). It’s a highly efficient, well-run company which is able to demonstrate a long track record of having delivered rapidly rising earnings growth. Due to the uncertainty present in markets at the moment, this relative certainty could be worth an even greater premium than usual and Compass shares may significantly outperform the wider index.

One of the main drivers of Compass’ share price in recent years has been its dividend growth. In fact, it has risen at an annualised rate of 11% during the last five years, which is clearly well ahead of inflation. Next year, Compass is expected to grow dividends by around 10% and yet shareholder payouts are still set to equate to just 55% of profit. This indicates that further rapid dividend growth is ahead to boost its current yield of 2.3%.

Post-Brexit shot in the arm?

Living in a post-Brexit world could also be made easier by investing in AstraZeneca (LSE: AZN). That’s because the key driver of its share price in the coming years is unlikely to be the political or economic challenges faced by the UK, but rather the company’s ability to transition from having a strong pipeline to having multiple blockbuster drugs.

Although there’s no guarantee that this will happen, AstraZeneca seems to be doing all of the right things to boost its top and bottom line performance. Its acquisition programme is likely to remain ambitious, while it remains a relatively efficient business that’s investing heavily in its own research capabilities.

Due to its strong cash flow, AstraZeneca has been able to keep dividends at a generous level in recent years so that it yields 4.4% right now, even though its profitability has fallen. This income stability, plus the scope for rapidly rising dividends and a low correlation with the macroeconomic outlook, mean that AstraZeneca could be an excellent ally in an uncertain post-Brexit period.

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Peter Stephens owns shares of AstraZeneca and Severn Trent. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.