Whatever Brexit looks like, investing in these FTSE 100 stocks makes sense


The United Kingdom is due to leave the European Union at 11 pm on 31 January 2020. Following the withdrawal, a transition period of 11 months begins. The UK will cease to be a member of EU institutions but will follow their rules. Following the rules means the trading relationship remains the same during the transition.

The UK government hopes to negotiate a trade deal by the end of the transition period. Failing to reach an agreement means leaving the EU on World Trade Organization rules. Alternatively, more time could be requested to reach a trade agreement.

There is still a great deal of uncertainty for the economy, markets, and investors to navigate. Holding a few large and stable FTSE 100 stocks in your portfolio could help smooth a potentially bumpy ride.

Crossing continents

Intercontinental Hotels Group has told investors that Brexit is unlikely to have any material impact on its operations or strategy. It owns, manages, franchises, and leases hotels all over the world. 61% of revenues come from the Americas and Greater China. Europe, the Middle East, and Africa account for 30% of revenues, so UK revenue exposure is likely to be minuscule.

The company presents its accounts in US dollars. If the US dollar strengthens by five cents against sterling, then profit before tax increases by $4.1m. Net liabilities decrease by $25.8m with a five-cent rise. A bad deal or no deal could send sterling tumbling, but be a boon for Intercontinental.

A global slowdown, with less spending on travel and leisure for business and pleasure, will hurt Intercontinental. However, a UK-specific slump will not matter too much.

Betting on brands

Unilever sells products that people love to eat, drink, and use to take care of themselves and their homes. Some of Diageo‘s alcoholic beverages have been enjoyed by drinkers for centuries. Both of these consumer giants have operations across the globe and sell their wares in hundreds of countries. Like Intercontinental, their exposure to the UK economy is relatively small.

Strong brands, loved all over the world, will keep revenues high even if people in the UK start cutting back.

At least you have your health

Prescription charges in the UK are heavily subsidised or cost nothing. Drugs administered in the hospital are free at the point of service. Even if things turn sour in the UK, AstraZeneca and GlaxoSmithKline‘s revenues should be safe. 

Astra and Glaxo are pharmaceutical giants and make sales in hundreds of countries across the globe. Having relatively low exposure to the UK is, again, a salve for a tricky Brexit.

No surprises

These five companies I have mentioned are members of the FTSE 100 and generally well known, and they may seem like self-evident picks to face the uncertainty of Brexit. That is not a bad thing. Until the risk goes away, holding some defensive stocks is not a bad strategy. If everyone has the same idea and starts moving into these stocks, that supports the price.

All of the stocks mentioned pay investors a consistent, ordinary dividend. If their prices are dragged down by the market, the dividend will buffer some of the price decreases.

If you are looking for other suggestions, you might be interested in the stocks that did well after the 2016 referendum.

The post Whatever Brexit looks like, investing in these FTSE 100 stocks makes sense appeared first on The Motley Fool UK.

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James J. McCombie owns shares of Diageo and Unilever. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, Diageo, and InterContinental Hotels Group. 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



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