Whatever happens over Brexit in the coming months, one thing that’s sure is we’re in for some economic turmoil — and that’s surely going to get share prices gyrating. So what’s the answer?
I’m personally not worried about short-term share price movements, and I’m happy to invest in what I see as irrationally undervalued shares, even if there might be a rocky ride over the next 12 months.
But during times like this, there’s often what’s known as a “flight to quality” where investors move their cash to shares they see as safer. If that sounds like you, are there any good buys that should minimise short-term upheaval while still offering long-term attraction? I think there are.
I see National Grid (LSE: NG) as one, and have done for some time. On safety grounds, I see the power provider as having two main things going for it. The first is that, despite a heavily regulated industry and despite competition from a number of new suppliers that have sprung up as a result of opening the market, utilities companies still have a very predictable earnings profile — far better than any other industry as far as I can see.
That leads to an ability to pay out a significant proportion of earnings every year as dividends, with long-term income expectations among the most reliable in the Footsie.
National Grid is currently forecast to provide yields of around 5.7%, and I see that as a very attractive combination of high-yield and long-term reliability.
The second big plus for me is that, in addition to being in an overall safe sector, National Grid provides the energy distribution networks through which the end-user retail companies sell their electricity and gas. And in that market, National Grid doesn’t really have any competition — whoever is currently best pleasing the meerkats in terms of latest pricing offers, National Grid still gets its cut of the money.
Another option is to go for global companies whose business is not going to be affected by Brexit. I’ve previously explained why Royal Dutch Shell would be my choice if I could invest in only one company, but that’s open to the uncertainties of the oil price (which, in turn, is affected by international politics).
Leaving oil price risk out of the equation, we have global giants like Unilever (LSE: ULVR).
Unilever owns so many consumer brands in so many markets that it’s almost impossible to go a full day without using at least one of its products. For me, I washed with Dove soap this morning and then had toast with Marmite for breakfast — two Unilever brands.
A quick look round the house finds products from Domestos, Hellman’s, Brut, Vaseline, Bovril, Lipton, Colman’s. And they’re just popular UK brands — Unilever sells hundreds of brands around the world that we don’t see on these shores.
As a popular flight-to-safety stock, the Unilever price has gained 5.8% so far in 2018, compared to an 11% fall in the FTSE 100. With my contrarian hat on, I tend to see an outperformance by Unilever as an indication that there are oversold bargains to be had elsewhere, like in the housebuilding sector.
But if you want long-term capital preservation with low risk, I see Unilever as hard to beat.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.