With Brexit uncertainty increasing, investors keen to stay active in UK listed stocks may be tempted to put their hard-earned money into FTSE 100 shares as those companies usually make more of their earnings outside of the UK and are therefore more insulated against the impact of Brexit. But our exit from the EU aside, I think these two companies look great value for anyone wanting to grow their wealth through investing in stocks.
The drinks beast
Diageo (LSE: DGE) is an alcoholic beverage giant with a market capitalisation of over £68bn and a presence in over 180 countries. The company owns over 200 brands, with globally appealing names like Guinness, Smirnoff, and Captain Morgan among them.
The company has managed to grow its share price in this tumultuous year while the FTSE 100 has lost ground, which is an impressive achievement and welcome news for existing investors. It does show the value of buying into dependable, stable companies. Diageo benefits from customer loyalty, predictable cash flows and economies of scale, so there’s a lot to like about it.
Although it certainly doesn’t fit into the ‘value’ category, it does seem to provide investors with a valuable protection against a volatile market. The company’s price-to-earnings (P/E) ratio is around 23, well above the ‘fair value’ level of 15 and has always been high because investors are attracted to such defensive characteristics. The yield of just over 2.5% isn’t spectacular though.
Nonetheless, I’d be keen to pick up the stock in uncertain times as it carries on growing steadily and benefiting from its power brands. A focus on ‘premiumisation’, which should lead to greater profitability because of higher average prices, alongside rising profits and a share buyback, all make Diageo look to me like a stock worth owning for the long term.
Benefiting from Asian growth
Prudential (LSE: PRU) is another FTSE 100 company that I think investors should consider owning. The financial company, which operates globally, is going through a restructuring which should support strong future growth. Increasing its focus on Asia, I think offers investors an exciting growth opportunity over the next decade and beyond. It should mean Prudential’s profits accelerate massively as it taps into a lucrative and growing market for insurance in the region. Prudential provides investors with a higher level of income than Diageo at a better price. It yields a little over 3% with a P/E of 11.
Just last week, Prudential showed its restructuring was already resulting in a stronger business and better growth. The results showed that, apart from asset management, all of its divisions performed well. Particularly good news for investors came in the form of news that the Asia unit saw new business profits jump 9% to £1.76bn, up from 3% in the first half of the year. Growth in the US also improved with profits at Prudential’s Jackson business up 22% to £716m. The UK’s growth was also positive, with new business profits at M&G Prudential rising by 18%.
For me then, the stocks together make a great pair. Prudential offers more turnaround and growth potential as well as greater access to Asia while Diageo offers a steady path to potentially increasing your wealth. Both companies look to have a bright future and could be an antidote for investors concerned about Brexit.