Dire outlook
Following the UK’s decision to leave the EU on Thursday, shares in property services company Countrywide (LSE: CWD) have fallen by a third. That’s because the outlook for the UK property market is dire, with many commentators predicting major falls in house prices, as well as reduced transaction volumes, as buyers become nervous regarding the outlook for the sector.
Clearly, this is bad news for Countrywide and it would be unsurprising if its shares fell even further in the coming days. Certainly, it is a relatively high quality business and has a sound track record of delivering earnings growth. However, in what looks set to be a tough operating environment it may be unable to offer investors above average bottom line growth over the medium term.
As well as Brexit, the housing market is also set to be hurt by tax changes, the potential for interest rate rises, and the fact that housing was already somewhat overvalued before the referendum. As such, it seems prudent for investors to look elsewhere at the present time, with other sectors being preferable on a risk/reward basis.
Weakened sentiment
Also falling heavily since the referendum have been shares in Balfour Beatty (LSE: BBY). The construction and support services company has recorded a slump in its valuation of 27% since Thursday and the key reason for that is uncertainty regarding the future of the UK economy.
With Balfour Beatty being heavily UK-focused, and dependent upon the level of investment in infrastructure and major projects, the lack of a clarity regarding the UK’s exit from the EU has caused investor sentiment to weaken. Although Balfour Beatty is in the midst of a successful turnaround following a challenging period, like Countrywide it seems to now be at the beginning of an era of challenging operating conditions.
And while its shares trade on a price-to-earnings growth (PEG) ratio of just 0.2, there is a good chance that its future profitability will be downgraded over the medium term. Therefore, while Balfour Beatty seems to be an improving business, it may be a stock to watch rather than buy at the present time.
Stunning potential
Meanwhile, Tullow Oil (LSE: TLW) continues to have stunning long term potential, but remains a somewhat risky play. Although its shares have been hit by Brexit as fears surrounding global demand for oil have surfaced, the reality is that the main driver of Tullow’s share price is likely to be increased production.
In fact, Tullow is due to rapidly increase its production as its Project TEN comes onstream. This is expected to boost pretax profit from £39m this year to as much as £200m next year. Such a major jump in earnings has the scope to rapidly improve investor sentiment towards Tullow.
And even if the price of oil does come under pressure following Brexit, Tullow may still yield a high return thanks to a price-to-book (P/B) ratio of just 0.9.