2 shares that could benefit from a positive Brexit outcome
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In recent months, most of the discussion surrounding Brexit has focused on why it could have a negative impact on the UK economy. While it may hurt the UK’s economic outlook, there are no guarantees that it will do so. In fact, nobody can say with any degree of certainty how the UK economy will perform in future years. Brexit is an unprecedented event which may have a positive, negative or minimal impact on the UK’s economic performance.
Bearing in mind that I focused on two shares which could offer defensive appeal ahead of Brexit in my last article, it seems appropriate to consider a couple of stocks that could benefit from a positive Brexit outcome. Their valuations and strategies suggest that they may be able to deliver improving investment performance in the long run.
Brexit uncertainty
In the near term, shares which have a significant amount of exposure to the UK economy may prove to be unpopular among investors. This is not particularly surprising, since investors generally have an aversion to change. Since leaving the EU is potentially the most significant political and economic move in a generation, some fear is to be expected in the short run.
Of course, the process of leaving the EU does not appear to be helping to calm investors’ nerves. There are still calls among various MPs, industry bodies and other individuals for a second referendum. Likewise, the appetite for a ‘no deal’ among Brexiteers appears to be high. And the proposed deal which has been agreed by the EU could prove to be unpopular whether or not it comes into effect over the medium term.
As a result of what seems to be a challenging Brexit process, UK-focused shares may remain volatile. In the short term, they could underperform the wider index.
Long-term potential
In the long run, the investment prospects of UK-focused shares Tesco (LON:TSCO) and Morrisons (LON:MRW) could be relatively appealing. Clearly, consumer confidence is weak at the moment, but both companies have been able to implement refreshed strategies that have boosted their financial prospects.
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Tesco, for example, has focused on improving customer satisfaction levels, as well as the quality of its products. This has led to an improved brand perception score, with it increasing by 3.6 percentage points in the first half of the current year. This may mean its customers are becoming increasingly loyal, which could strengthen its future performance in what is a highly-competitive supermarket sector. Since Tesco has double-digit EPS growth forecast over the next two years, its PEG ratio of 0.8 may indicate that it offers good value for money.
Morrisons has focused on growing its wholesale operations. They have provided it with increasing exposure to areas such as convenience stores and online without incurring the upfront costs which are normally associated with such expansion. The company is also seeking to boost customer satisfaction levels, with improved data usage creating better-targeted marketing campaigns that could lead to incremental sales. With 9% EPS growth forecast in each of the next two years, the strategy being pursued appears to be sound.
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