The Brexit Is Real: Sell These 3 Stocks Now
In somewhat of a shocking move, Great Britain has voted to leave the European Union. The Brexit is officially real.
This will be the first time ever that a company has left the EU and one of those “worst case” scenarios for the markets. All of which comes at a time that we are already on unsteady footing – as economic growth expectations remain tepid and gold continues to soar.
The selloff we saw on the Brexit day could just be the beginning. This will be a relatively long and drawn out process; we’ll have negotiations that could take years, and, ultimately, this could push Britain into a recession. Over half of Britain’s exports are to other EU countries, so they’re alienating a huge part of their economy.
But the dominoes could just be starting to fall. The Brexit will likely lead other countries, including Spain and France, to hold their own exit votes. So now you’re going to have a slowdown all across Europe.
So while many investors were going on the offensive last week, looking for buying opportunities, the prudent move is to be on the defensive.
With that in mind, here’s how I’m thinking about playing the Brexit: Selling US companies that generate a lot of revenue from the UK.
The key is that these types of companies, which are doing big business in Britain, will have to convert their revenues from British pounds to US dollars. With the Brexit, the pound to dollar exchange rate is at its lowest level in more than 30 years and should continue to go lower.
Thus, it’s two fold; one, a continued slowdown in the Britain economy that will hurt revenues, while a weakening currency will mean companies get even less when they convert their money to US dollars.
Here’s the top 3 stocks I’m selling today on the Brexit news:
Top Brexit Stock To Sell- No. 1:
eBay (NASDAQ: EBAY) eBay generates over 15% of revenues from Britain. When coupled with the risk from Amazon.com (NASDAQ: AMZN) taking market share, eBay is an easy sell.
Sellers have been moving over to Amazon thanks to easier fulfillment, not to mention increased competition from the likes of Alibaba (NASDAQ: BABA) and Etsy (NASDAQ: ETSY).
Ever since the PayPal (NASDAQ: PYPL) spinoff, the growth for eBay going forward has been questionable. Its marketplace unit has already hit scale and saturated around the world. It’s also facing changes to Google’s (NASDAQ: GOOGL) search algorithm which has put downward pressure on web traffic and increased its user acquisition costs.
Top Brexit Stock To Sell- No. 2
Ford (NYSE: F) Ford is an underrated company with a lot of Brexit risk. It’s generally considered a US automaker, but it generates almost 20% of revenues from Britain. Couple that with the cyclicality of the auto industry, where auto sales could be hitting a top, and you have a perfect storm working against Ford.
There’s also the slowdown in South America, where Ford also has a strong presence. Lest we forget the large pension liabilities that Ford has in its European business that will be an overhang for the foreseeable future.
Top Brexit Stock To Sell -No. 3
Penske Automotive Group (NYSE: PAG) Penske Automotive Group gets over a third of its revenues from Britain, which makes it perhaps the most exposed US company to the Brexit. They’re also facing similar issues as Ford, where US new car sales will likely slow going forward.
The other key for Penske is that it’s an acquisitive company, using that as its key growth avenue. However, it appears that acquisition opportunities are drying up.
All three companies starting feeling the pain last week, but there could be more to come. The play for prudent investors is to raise cash by selling off Brexit exposed stocks and use it to take advantage of the unnecessary selloffs.
The major fear that is gripping the market right now makes for a great time to purchase shares for cheap. We have seen it already twice in the last year. This time, the impact of Britain leaving the European Union will be the major uncertainty that the market has to work through.
However, as we’ve seen during the last two sell-offs, the market does not discriminate which stocks will actually be affected by the Brexit. All stocks will be sold across the board making the companies that can continue to churn out revenue and earnings growth no matter what happens in Europe great bargains to add to your portfolio.
Disclosure: