10 stocks to win or lose from a Brexit

Financial Mirror (Cyprus) - - FRONT PAGE - By Jon C. Ogg

Per­haps the move for a rapid exit by Bri­tain from the Euro­pean Union (or Brexit) may have been in­ter­rupted due to a po­lit­i­cal mur­der of MP Jo Cox last week. As she was a mem­ber of par­lia­ment, per­haps this should be con­sid­ered an as­sas­si­na­tion.

Shortly af­ter this hor­rific act took place, stocks re­cov­ered as the shift went to what may be a more thought-out process rather than the con­stant close polls of whether the United King­dom will re­main in the EU.

There is no way to cover ev­ery sin­gle com­pany with big ex­po­sure to a “stay” or “leave” vote. Most of the com­peti­tors of each of th­ese na­tions would also fall un­der the same ar­gu­ment. Ei­ther way, we have shown why the ten com­pa­nies in­cluded here would or would not have ex­po­sure to the Brexit vote out­come.

24/7 Wall St. has tracked mul­ti­ple Brexit fore­casts in re­cent days and weeks. We wanted to fo­cus on might hap­pen to cer­tain sec­tors if the vote to leave suc­ceeds. There could be some losers here, but in­ter­est­ingly enough a vote to stay might not ac­tu­ally cre­ate a mas­sive rally. A lot re­mains up in the air, and the for­mal vote might not be the end of this mat­ter as the U.K. likely will be chang­ing how it views its in­clu­sion in the EU re­gard­less of the vote out­come.

A Keefe Bruyette & Woods re­port shows that the largest so-called uni­ver­sal banks would have the great­est ex­po­sure. This puts JPMor­gan Chase & Co. and Gold­man Sachs Group Inc., both of which are Dow Jones In­dus­trial Aver­age com­po­nents, in fo­cus. KBW’s re­search team warned that th­ese and other uni­ver­sal banks could face a 1% to 6% earn­ings loss in 2016 and a loss of 2% to 9% to 2017 earn­ings if the vote is to leave. Jamie Di­mon of JPMor­gan al­ready has warned that he would have to reeval­u­ate how the com­pany’s ex­po­sure and busi­ness is con­ducted in the U.K. and the rest of Europe. Other banks, like Bank of Amer­ica Corp., were also sin­gled out banks with big trad­ing and ex­po­sure to the Brexit out­come.

24/7 Wall St. ear­lier iden­ti­fied two po­ten­tial Brexit win­ners. One was a move out of fi­nan­cials and into ma­te­ri­als via Freeport-McMoRan Inc. Its shares were al­ready up 60% year to date, but the shed­ding of other as­sets and cost cuts may lead to hand­ily trim­ming of losses. HSBC Hold­ings Plc was an­other pick, which is rather con­trar­ian and coun­ter­in­tu­itive, when you think that fi­nan­cials have the most risk. The rub here is that HSBC has been such a poor per­former in re­cent years and is so close to its post-2008 fi­nan­cial cri­sis lows that per­haps the Bank of Eng­land would have to pump in more liq­uid­ity to calm mar­kets. Freeport-McMoRan and HSBC: two op­po­site sides of the spec­trum.

South­west Air­lines Co. is one of the few air­lines not chal­leng­ing 52-week lows. While this might not rally or tank based on the out­come of a Brexit vote, the re­al­ity is that South­west is viewed as a U.S.-fo­cused op­er­a­tion. Could it be that most of South­west’s ef­forts are U.S.-fo­cused, and those out­side the U.S. mar­kets are in Latin Amer­ica and the Caribbean? South­west shares were last seen at $40.00, more or less close to the mid-point of its $31.36 to $51.34 range over the past 52 weeks. United Con­ti­nen­tal and Amer­i­can are both dan­ger­ously close to 52-week lows, and they are much more tied to in­ter­na­tional op­er­a­tions in Europe. as uni­ver­sal

of­fice cost

As­traZeneca Plc, one of the largest phar­ma­ceu­ti­cal and bi­o­log­ics com­pa­nies in the world, is an amal­ga­mated com­pany that has been merged and merged in the past 20 years or so. Its Lon­don head­quar­ters comes with op­er­a­tions in over 100 na­tions. A lot of those sales of course come from the Euro­pean Union and the United States, so it would be easy to as­sume that the drug gi­ant could face some se­ri­ous lumpi­ness when you con­sider that the Bri­tish pound has so much po­ten­tial fluc­tu­a­tion.

An­other fac­ing the most ex­po­sure to a Brexit tur­moil is Bar­clays Plc. At least that is ac­cord­ing to a Jef­feries an­a­lyst who said that a leave vote in Brexit would hurt the stock the most, with its ties to the cur­rency moves of the pound. In­vestors need to keep in mind that Bar­clays’ Amer­i­can de­posi­tary shares (ADS) are al­ready down 50% from the 52week high, and the $9.50 share price com­pares to what has been an $8.00 to $9.00 floor over the past five years.

Wal­greens could have in­verted when it merged with Boots Al­liance to form Wal­greens Boots Al­liance Inc., but it did not. This also has a lot of po­ten­tial “if this, then that” ex­po­sure, with Wal­greens try­ing to ac­quire Rite Aid Corp. in the United States to in­crease its U.S. re­tail phar­macy op­er­a­tions. While th­ese are all in­volved in phar­ma­ceu­ti­cal whole­sale op­er­a­tions, the Boots stores and in­ter­na­tional op­er­a­tions have an ex­ten­sive pres­ence in the U.K. and in Europe, with over half of the in­ter­na­tional re­tail stores be­ing in Bri­tain. If a Brexit takes place, Wal­greens may want Rite Aid that much more and may even make more con­ces­sions to ac­quire the com­pany.

That makes Rite Aid and Wal­greens Boots Al­liance a two-in-one with ex­po­sure in the U.S. Just re­mem­ber that at the end of the day, this is per­haps more of a cur­rency is­sue than any­thing else. Peo­ple who need con­sumer prod­ucts and drugs are go­ing to need them no mat­ter which way the vote goes.

As far as other im­pacts, there are too many to dis­cuss in a short piece like this. The re­al­ity is that if the strength of Europe leaves the Union, then the pe­riph­eral at-risk na­tions will not see their cost of bor­row­ing go down like you have seen in France and Ger­many. Na­tions like Spain, Por­tu­gal, Greece and Italy have all seen at least some dis­rup­tion be­cause there would be fewer na­tions to help sup­port their de­mands Euro­pean Union.

From an out­sider’s view, one who has lit­tle to no di­rect in­volve­ment or de­pen­dence on how this vote turns out, this is just one take on both sides of the Brexit vote:

- The peo­ple in favour of the U.K. leav­ing the EU think that the na­tion is be­ing bogged down with ex­ces­sive busi­ness reg­u­la­tions out of Brussels and that Bri­tain has to pay to keep bail­ing out weak EU na­tion states. Their view is that re­sum­ing control over their own bor­ders will help to curb the in­flux of un­wanted im­mi­grants, mi­grants and refugees. They also see the exit as a way to free up fu­ture and cur­rent fi­nan­cial re­sources that would re­ceive ben­e­fits now or ahead with­out hav­ing con­trib­uted fully themselves.

- The peo­ple in favour of stay­ing be­lieve that it will cause the least dis­rup­tion to the econ­omy and to the sta­tus quo. The pro-EU crowd ar­gues that the ease of trade and free trade with the EU helps the United King­dom more than it hurts. In some man­ners, the pro-EU group also sees i mmi­gra­tion as helping to off­set its own ag­ing de­mo­graph­ics. An­other is­sue is of course de­fense, and the pro-EU group feels that their na­tional se­cu­rity is stronger be­ing part of the EU rather than not.

It is hard to cover such a large event with­out want­ing to voice a per­sonal view or pre­dict an out­come. That be­ing said, polls in the United King­dom have proven to be as un­re­li­able as polls in the United States. This is also a U.K. mat­ter with and also against the EU.

Fi­nan­cial mar­kets al­most al­ways would pre­fer to see the sta­tus quo up­held, but some­times things are far more com­pli­cated than just what the di­rec­tion of the stock and bond mar­kets tries to tell you.

No mat­ter what the out­come of the vote, the stay or leave is­sue re­mains. And you have to know one thing by now: if there is any­thing that fi­nan­cial mar­kets hate hav­ing to in­ter­pret, un­cer­tainty is at the top of the list.

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