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Which stocks should you buy before Brexit?

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As the coronavirus crisis has dominated newspaper headlines over the past few months, Brexit has fallen by the wayside. 

However, the UK’s divorce from the EU is still in progress. The UK formally left the EU at the beginning of the year. The transition agreement between the two parties is expected to finish at the end of 2020.

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At the time of writing, no deal has been agreed between the negotiating teams. This suggests that the country is heading for a so-called hard Brexit at the end of the year. 

While there is still time for negotiators to make progress, investors may need to start planning for Brexit today. 

Brexit stocks

Trying to predict which companies will succeed or struggle because of Brexit is complicated. As we don’t know the exact terms of a divorce agreement, it’s impossible to tell what impact the final outcome will have on individual businesses

That being said, it’s clear companies will face higher costs across the board. Businesses that rely on Europe as an export market may also suffer as they could lose preferential market access. 

On the other hand, organisations that have a wider international footprint may fare better.

Companies like consumer goods giant Unilever, pharmaceutical group GlaxoSmithKline or international distribution business Bunzl have highly diversified global operations. They also have more financial flexibility to cope with any new rules and regulations that Brexit might produce. 

These high-quality companies with strong balance sheets may produce better returns than smaller competitors no matter what form Brexit eventually takes. 

Domestic focus

Other stocks that are likely to cope well with Brexit include businesses that have a domestic focus. Demand for services from companies like telecommunications giant BT may not decline after Brexit.

Consumers are not going to stop using the internet, watching TV or making phone calls when the transition agreement finishes at the end of the year. BT might face higher costs, but it could pass these on to customers. 

Insurance group Direct Line also seems well placed to navigate any Brexit turbulence. The company might have to deal with higher costs as a result of a no-deal outcome, but its predominantly UK customer base will always need insurance services. 

The same goes for the financial services group Phoenix. The business has grown substantially over the past decade, buying up life insurance and pension policies. The company manages these on behalf of policyholders. No matter what shape or form Brexit takes, customers across the UK will still need pension management services and life insurance.

The bottom line

Therefore, while Brexit is almost certainly going to have a significant impact on some businesses, other organisations may not see a meaningful impact on operations. By concentrating on these companies, such as those outlined above, investors may be able to Brexit-proof their portfolios. 

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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK has recommended GlaxoSmithKline and 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.

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