One of four well-known movies could be a perfect fit for Thursday’s election result, but whatever the outcome, Jefferies has stock suggestions for any scenario.
Very much in the holiday spirit, financial services company Jefferies offers investors a Christmas list of UK stocks to buy ahead of tomorrow’s general election.
Their economists and strategists consider four Christmas films to suit potential outcomes on Thursday 12 December, while analysts identify stocks to buy or avoid depending on the result.
While one of four Christmas movies will be chosen, unfortunately, It’s a Wonderful Life is not among them. Yes, the UK is cheap (circa 12.5% discount to Europe vs. 3.5% 20Y avg.) and will re-rate in the event of an outright Conservative victory. But a comprehensive analysis of recent polling data suggests that a Tory victory is partially priced in.
Since June 2019, the FTSE PE has already moved 9% higher in lock-step with prime minister Boris Johnson’s progress in the polls. We also think that Brexit will hurt more than constructive policy measures can help. What is good for risk premiums on day one may not be good for the economy longer term.
Home Alone: a comfortable Tory majority has a 30% likelihood. In this scenario, Brexit is done, but in terms of the future trading relationship a 20% chance of no-deal remains. We see fiscal stimulus accelerating GDP growth in 2020 and 2021. Utilities, banks and retail benefit; exporters lose out from a GBPUSD moving higher. Stocks to buy in this scenario include BT, RBS, Centrica, Persimmon, Greencore, Dart Group and Morrisons.
Love Actually: there’s a 30% chance of a relationship (a confidence and supply fling) blooming between the Tories and Lib Dems. But the Lib Dems require a second referendum, leading to volatility and uncertainty throughout 2020. GDP growth is modest and the GBPUSD ticks modestly above its current spot. 20% risk of a no-deal remains. Utilities and telecoms lead defensive markets. Consumer uncertainty keeps banks and retail from benefiting.
A Christmas Carol: a harmonious Labour-led coalition has a 30% chance of happening. Then there’s an 80% chance of another referendum. A sizeable fiscal stimulus could be on the cards in 2020-21, but another election probably looms. GBPUSD remains modestly under pressure. The spectre of regulation hangs over utilities, telecoms and banks. Retail spending does not increase.
Trading Places: Jeremy Corbyn moves in. It’s unlikely (a 10% chance), but would mean a high chance of a referendum. The likelihood of remaining in Europe, plus large fiscal stimulus may do more to help the UK than left-leaning policies hurt, potentially driving an acceleration in GDP growth in 2021. Initially, sterling is under pressure and yields rise. Exporters and miners benefit; utilities, telecoms and banks get crushed. Most at risk include Royal Mail, water utilities, RBS, BT, and UK gamblers.
Don’t like the choice of Christmas films? Why not buy value instead. We identify 14 UK buy-rated stocks that are cheap vs. European peers and sit over one standard deviation below their five-year averages. Top of our list are Cineworld, Kingfisher, OneSavings Bank, Aviva, ABF, and Centrica.
Jefferies’ economists and analysts contributed to this piece.