You’ve probably heard chatter about a so-called Brexit bounce. It’s not a new term, and has been talked about for the past year or so. The premise is that on the successful completion of a deal between the UK and EU, UK assets (such as the FTSE 100 and 250) should see a bounce. Over the past couple of weeks negotiations have stalled, with the risk of no-deal increasing. Yet I still think there’s a higher probability of a deal versus no-deal. On this assumption, there are some top British stocks that I think could be top performers if we see a Brexit bounce.
A top property stock At a broad level, the property market is one that could perform well after Brexit. If the cloud of uncertainty is removed, many are forecasting an inflow of foreign investors into the property market. Domestic demand could also rise, even with the post-lockdown rally already seen over the past few months.
To make the most of this, I’d be looking to buy Rightmove (LSE: RMV). Aside from housebuilders, Rightmove is a great barometer of the state of the housing market. It’s the UK’s largest real estate portal. It’s shown strong share price growth over the past few years, so I’d prefer to own it over more mature builder stocks. In the latest results announced earlier in the summer, its CEO said “it’s quite incredible that 65 of our record [traffic] days have been since 13 May”. This shows me that when consumer demand is there, Rightmove is the company that captures it.
Thinking ahead, Rightmove could continue to be a top performing British stock after Brexit. It’s already established in the marketplace, and is in a great position to capitalise on other government-led initiatives (like the cut in stamp duty through to Q1 2021).
A top retail stock The retail sector is another area that could enjoy a Brexit bounce. The UK has already committed to reducing some tariffs below the level set by the CET (Common External Tariff). This will help some retailers to import goods at a cheaper rate than previously, boosting profitability.
That said, the pandemic has thrown a massive spanner in the works. Therefore, I’d look to buy Tesco (LSE:LON:TSCO) as a top British stock in this sector. I feel it’s a safer play. Although it’s a retailer, it’s also a defensive stock. A Brexit bounce would hopefully add to the boost to revenues already being seen in recent months.
Half-year results were released in early October and showed a rise of 8.6% in revenue for the UK and Ireland. Pre-tax profit also rose by 28.7%. This shows me that the role of Tesco as a defensive stock is playing out well. Given that the firm has managed to perform well during Covid-19 so far, even with increased costs, it could be in a strong position to take advantage of any post-Brexit opportunities.
Tesco has averaged a gross profit margin of less than 5% for the past four years. Since the operating margins for supermarkets are slim, any deals struck as part of Brexit for subsidies or lower taxes could really benefit Tesco.
The post Here are 2 top British stocks that I think could get a Brexit bounce appeared first on The Motley Fool UK.
jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove and Tesco. 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.
Motley Fool UK 2020