Finding shares for a Brexit portfolio

Using the one-day price response to the 2016 referendum vote is a useful screen for finding shares of companies that could handle Brexit.

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What kind of UK listed company will do better with Brexit? If it is UK based it should be an exporter or have strong brands and loyal customers. If it imports goods then they should be capable of withstanding delays caused by border frictions.

Having operations outside the UK would be good. Similar to exporting, oversea revenues would be boosted if the pound falls. If the company is merely listed in the UK but based elsewhere, ideally outside the EU, then the impact of Brexit on its operations should be negligible.

I did not want to analyse every company in the FTSE 350 index. So, given the vote to leave was announced after markets closed on 23 June 2016, I looked at share price responses the following day. On average, shares fell by nearly 5%, therefore the top 12 risers should have something about them that kept investors confident (a top 10 had to become 12 because two stocks are not doing so well now).

Content creators

Shares in Future, a media and digital publishing company, rose by 15.8% the day after the referendum and have not stopped. The company publishes authoritative digital and print content that caters to passionate amateur and professional customers who are dedicated to their niche or specialist subject. It also arranges events for fans and followers.

RELX provides scientific, technical and medical publications and articles. It also operates an events and exhibitions business and provides analysis of technical and legal information to clients. Having professional international customers may be the reason investors drove the share price 4.3% higher despite the vote to leave.

Pearson done well after the referendum but has run into difficulties since.

Gold diggers

Precious metals miner Centamin hauled in a 14.8% gain for its shareholders after the vote. Fresnillo shares rose by 14%, and those of Hochschild Mining went up by 10.8%. An 8.3% gain for shares in Polymetal International was disappointing only in comparison.

Investors seem to like gold and silver in times of turmoil and these companies mine them outside the UK. Since they are usually priced in dollars, reported revenues get a boost when the pound wobbles.

Digging for polyhalite fertiliser does not have the same allure as going for gold, but Sirius Minerals was in the top 10. However, it has struggled to secure funding since then and its share price has crashed.

Room service

Voting to leave gave Intercontinental Hotels Group a 4% share price boost. Hotels are owned, managed, franchised and leased internationally. A weaker pound may also make the UK a more tempting holiday destination, therefore hotels here may be in greater demand.

Healthy Business

GlaxoSmithKline is a multinational pharmaceutical giant, and shares in it shrugged off the referendum result by rising 4.4%. People need their medications, and both government and insurers’ budgets take much of the strain.

Medical care providers Mediclinic International and NMC Health saw share price rises of 5.1% and 6.4% on June 24 2016. Both companies have zero UK operations, but Mediclinic has some EU exposure, while NMC has none.

Are you prepared?

Basing stock choices on a one-day response to a single event is dangerous, of course. But it was a useful filter to find businesses that have fundamentals that justify the response. Adding stocks like these to your portfolio may help prepare it for the UK leaving the EU.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Fresnillo, InterContinental Hotels Group, NMC Health, Pearson, and RELX. 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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