Brexit = Fear = Opportunities. Would love to hear your thoughts on what to buy...now or after the vote.
The old investing adage ""buy on the sound of cannons, sell on the sound of trumpets" basically advises to buy when things are uncertain, as in war time and sell on the conclusion of the war as peace time breaks out.
Now Brexit may well have some pretty profound challenges for the UK economy in the short term if we vote to leave. Also even if a Leave vote doesnt actually affect the economy I think the stock markets will see a wave of selling of domestic cyclicals like retailers and housebuilders. Leave should also raise the spectre of the European Union seeing more seccessionist demands from places like Catalonia, emboldened by the Britsh vote.
We can all get very bearish, but uncertainty almost always means opportunity.
Want I want to is profit from the situation if we choose to remain or leave.
Here are a few ideas I have had
Vote Leave
Sell / Short Peripheral European Banks. I dont think this is a crowded trade, so would look to put this on. Or maybe buy a long dated out of the money put on the european banks index
Buy GBP vs Euro (on the assumption that the Euro is now seen a basket case and is more likely to split up)
Buy UK listed global staples eg Unilever, BAT if they fall in sympathy with the wider market, but hedge myself by shorting more expensive US listed staples eg Colgate etc
Buy UK Exporters, especially those that sell to the US where i expect the USD to strengthen thus giving a pricing advantage to UK exporters. Ideas are pretty limited but Portmeiron caught my eye. This was THE trade post our exit from the ERM in 1992. Any good UK exporters ?
I think I would short UK housebuilders on the highest valuations. Anyone near 2x P/TNAV is toast in my eyes eg Berkeley Group (LON:BKG)...and thats even after the recent falls. I think this sector is v well owned still by fund managers.
Meat processor £CWK looks interesting and any fall in that shareprice would be a buy. I am told numbers still look conservative, so room for further upgrades, the balance sheet is in great shape and our consumption of Pork and Poultry wont really change if we vote to leave.
Vote Stay
I am not sure the UK economy is in great shape at the moment. Having said that I would expect a pretty large rebound in some UK cyclical names. Hardest hit recently have been Challenger Banks eg Aldermore, Housebuilders, UK property, UK retailers, FTSE250 in general. I really like CLS Holdings in the property space at a 30% discount to NAV.
I think GBP goes up vs USD and probably vs Euro (I cant confess to being a currency guru though)
Bovis Homes (LON:BVS) looks the cheapest housebuilder to me, and every stockbroker i speak to hasnt a good word to say about it, which is fine as it tells me it definitely isnt a favourite so should rebound nicely. Bovis has room to rerate as it is on 1.1x FY16 Tangible book, wheras the others are trading towards the very top of the historical valuation range. I dont doubt the the whole sector will rebound on a Stay vote though.
I wonder whether a FTSE250 call option could be the way to play things? say 5% out of the money. If we vote to leave I lose my premium, if we stay the FTSE250 definitely rebounds vs FTSE100 and probbaly goes up at least 5% in the next few weeks.
If you have an thoughts on what to buy, or sell or short please contribute, especially those companies with great business models that you think have been very harshly dealt with by the stock market recently
Veg Patch
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4 comments
FWIW I think the EU will have more protest votes over the summer, more migration issues and the treat of referenda will stalk a number of member states.
Also the UK should have more certainty by September as we have a new PM in place
Therefore I think the Euro has a high chance of weakening vs GBP.
I have bought December 16 puts on EURGBP with an 81 strike and 79 strike.
Was about to sign off with "its all fun and games", but it really isnt at the moment!
only my thoughts....please dont constitute them advice
Many of the engineers are exporters, Renishaw Renishaw (LON:RSW) is always worth keeping an eye on albeit with far eastern issues at present.
some defensive stocks such as Hilton Foods, Treatt are looking cheap with the drops, so might keep a eye on them to buy back in
There was a similar thread from before so i'll repeat my post from that.....
I would be interested in knowing if anyone has a more considered Quant view to this question of what to buy as I had been thinking about strategy around this.
I think i'm inclined to buy businesses that people say are "always expensive" which have come off by say 5% over a period of turmoil rather than buy companies which have come down by 20% and which now look like bargains in comparison with their recent high (lets call them "sudden bargains").
With this approach I think I am favouring quality over value and investing over trading.
Assuming that there is a recovery over a period of turmoil then possibly this will mean that I miss out on bigger return as the 20% closes up in the "Sudden bargains" but my argument would be that the return to pre-turmoil prices might be all that I make over a 1 year horizon while the "always expensive" shares would close their 5% gap and then go on to make a further 20% just due to being great companies which everyone wants.
Its just a theory but would be interested in knowing if we can test it at all using Stockopedia stats.
Maybe there is a strategy that analyses daily the fall of stock prices over a set "period of turmoil" that is known about in advance, i.e. a run up to an election or in this case the referendum. For Brexit we could pick between 6th June running up to the 23rd.
The analysis would exclude shares that have reported during that period and then look for shares that have dropped the least in comparison with a benchmark. These stocks that hold up under pressure must be high market conviction stocks which most people have decided to continue to hold and these should be what we should try and buy into?
Ideally I would then track them over a further year to see if the "Sudden Bargains" outperformed the "always expensive" and which won over a longer time horizon.
Alternatively is there just a way to check how high stockrank shares do in a period of turmoil against low stock ranks? Any ideas Ed?