Top British stocks to load up on before and after Brexit – Yahoo Finance UK

As we all know, the risks of a hard Brexit are extremely high. But it doesnt mean that investors should avoid Footsie shares. Instead, they should add purely domestic stocks to their portfolios.

It looks like the UKs government has taken a hard stance towards negotiations with the EU. There are certain points that the UK and the EU simply cannot agree on. For example, they cannot reach a compromise on fishing rights. It seems that the negotiations might go on for a long time. But the most serious problem is the December deadline, I think. The British government and Parliament simply do not want to extend it. So, I think the chances of a hard Brexit are quite high. But dont worry! You can hedge against this risk by buying some purely domestic companies shares. What do I mean by this? Well, these companies rely on the UKs consumers and not the EUs markets.

As my colleague Jonathan Smith pointed out, purely domestic shares should be bought as a hedge against a hard Brexit. I agree with him. Some of the stocks Jonathan mentioned seem to be less risky than others.

Taylor Wimpey is a housebuilding firm. Since it has little to do with the EU, it could look like it is less of a risk than many Footsie companies. However, there is a rather indirect link between the company and the Brexit. Many economists argue that a hard Brexit would lead to a long-lasting recession. If they are right, then a recession would lead to a dramatic fall in peoples incomes and savings. As a result, they would have much less cash available to spend on houses and flats. So, the demand for Taylor Wimpeys services would decline, leading to a significant reduction in the firms revenue and profits.

In my view, supermarkets are by far a much better alternative to housebuilders if a hard Brexit takes place. This is because supermarkets sell groceries and other essentials. Obviously, consumers have to eat and buy hygiene items regardless of their incomes. Moreover, this type of goods also takes a relatively small proportion of peoples incomes. So, they will not significantly reduce their spending on the goods sold by largest UK supermarkets. Finally, supermarkets like Tesco and J Sainsburyare not overexposed to the EUs markets either. All this makes this sector a rather risk-free bet in case of a hard Brexit. But the question is whether to choose Tescos or J Sainsburys shares.

I think that Tesco is a better alternative to Sainsbury. First of all, the former is much larger. Sainsburys sales revenue in 2019 was a little bit above 28bn as opposed to Tescos sales of over 63bn. Moreover, Tescos net profit margin, a key efficiency indicator, is 1.5% compared to Sainsburys net profit margin of 0.5%. Then, Sainsburys price-to-earnings-before special-items ratio is 33 as opposed to Tescos 23. This means that Sainsbury is more overvalued than Tesco.

So, my choice among these British shares is definitely Tesco. However, I dont think that an investor should only focus on purely British shares. There are many other FTSE 100 companies that can surely survive and flourish even during a tough recession.

The post Top British stocks to load up on before and after Brexit appeared first on The Motley Fool UK.

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Anna Sokolidou has no position in any of the shares mentioned in this article. The Motley Fool UK has recommended 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.

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Top British stocks to load up on before and after Brexit - Yahoo Finance UK