Brexit Bargain Stocks Require Creative Mindset, Risk Tolerance

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Frenzied bargain-hunters will immediately delve into the carnage of markets in the post-Brexit earthquake. Analysts advise caution but, more importantly, think creatively.

The most obvious places to look are among the multinationals in economically less sensitive industries that just happen to be listed in London. At the top of the heap, think healthcare, they recommend.

Healthcare, as well as the consumer goods and tobacco sectors, are so obvious they hardly reacted today, and in some cases moved up. Even as the FTSE 100 index plunged 4% in the first hour of trading, shares rose in GlaxoSmithKline PLC (London).

The pharma behemoth generates sales, incurs costs and raises capital in such a wide variety of currencies that Sterling’s plunge won’t affect its economic operations significantly. In fact, today’s extreme exchange-rate movement will boost the reported profits of those companies that still report in sterling, including British American Tobacco, making it easier for them to pay dividends to their British shareholders.

This happened in 2008 and it seems likely to happen again in 2016, says the Wall Street Journal. These U.K. shares actually performed better than those of continental European peers at the open. Swiss healthcare giant Novartis AG (Basel) saw its shares fall 2%. Investors eager to take advantage of today’s wild market gyrations will need to think more creatively–and take on more risk.

In terms of the wider life sciences industry in the UK, only a small fraction of the budget comes from the EU, so there “shouldn’t be a fundamental impact on R&D projects”, according to one analyst.

Moreover, many non-EU countries, such as Switzerland, benefit from EU funding.

“The best science attracts the funding and I don’t see any reason why the best scientists would not still be attracted to best universities and research centers in the world, of which there are many in the UK,” said Paul Cuddon, of Numis Securities.

If there is comfort to be taken in the broader market reaction to Brexit, it is that “safe” stocks haven’t also been thrown under the bus. Markets are still functioning. Those hoping for low-risk “Brexit bargains” will most likely have to wait for the next market dislodgment.

Sunday, June 26, 2016