When I read the recent news, I understand that a no-deal Brexit is highly likely. The situation sounds like a big challenge for people with £10,000 or any other significant amount to invest. But don’t worry. Here’s what I’d do.
No-deal Brexit threat
No doubt the recent news is more than worrying. As we all know, the deadline to reach the final free trade deal is 15 October. But the EU and the UK are still unable to agree on many issues, including fishing rights and state aid. So, it looks likely the UK will leave without any deal. But what should we as private investors do to avoid losing our hard-earned money?
Where would I invest?
My colleague Rupert wrote a great article about some of the companies likely to benefit from a hard Brexit. One of these is IG Group, a financial services provider. Indeed, a rise in volatility means plenty of trading on behalf of the company’s clients. All these trades transform into higher revenues and hopefully profits for IG. Rupert also suggested buying high quality international companies.
While I agree with high quality, I’d personally go for local UK companies. After all, there will still be customers in the UK regardless of the country’s relations with the EU. But the problem is that local companies are typically small. This means they don’t normally enjoy the economies of scale and higher credit ratings that the larger ones do.
So, I wouldn’t just choose companies with a strong UK focus. The nature of the business the company is in is also very important. I’d focus on firms specialising in essentials such as food. It doesn’t matter how big the resulting crisis may be –consumers will still have to satisfy their basic needs.
So, whether there is a hard Brexit or not, some of the largest UK companies will still flourish, I think.
My top picks
Tesco (LSE:TSCO) is by far the largest supermarket chain in the UK. It relies heavily on domestic demand. However, just like most large companies it also operates in other countries. It’s present in Czech Republic, Hungary, Slovakia, and Poland. Also, a small portion of Tesco’s revenue stream is from Asia. The main reason why I chose this company is because it doesn’t rely heavily on the economic cycle. Indeed, we all need to buy groceries and hygiene items. I also like the fact that many of Tesco’s directors have recently increased their stakes in the company they manage.
Unilever (LSE:ULVR) specialises in personal care, home care, and food essentials. In fact it’s the third-largest consumer products company worldwide. The fact that it’s an international company isn’t great in the situation of geopolitical uncertainty we are all in. At the same time, its large size and high credit rating are to its advantage. What’s more, the company pays sustainable dividends and is trading at a price-to-earnings (P/E) ratio of around 20. That’s not particularly expensive.
Although my top picks aren’t exciting, they should hold up relatively well in the case of a no-deal Brexit.