The initial shock of the U.K.’s decision to leave the EU has begun to die down and U.S. share markets have more than recovered, to the point where the S&P 500 has surged to new all-time highs.
At the time, the Brexit gave investors a rare chance to snap up blue-chip stocks at bargain basement prices, and people are already seeing nice short-term returns on the snap-back rally.
However, despite the optimism now, the realities of the U.K.’s vote will weigh on some big-name firms for years. Companies with U.S.-centered businesses are likely to be relatively insulated from the negative effects of the Brexit, but those with a great deal of exposure to Europe are unlikely to thrive over the coming months and years.
Here’s a look at three blue-chip stocks that will be caught up in the Brexit blues.
Blue-Chip Stocks to Sell: Bank of America Corp (BAC)
Banking stocks have generally been hit hard by news of the Brexit. While European banks are suffering the most, U.S. banks are also struggling, particularly those that are heavily dependent on interest rates.
Bank of America Corp (NYSE:BAC) stands to make an additional $6 billion in interest income should the Federal Reserve raise interest rates, something that enticed investors to buy into the bank a few months ago when a rate hike appeared imminent. Now, rising rates are very unlikely, and some are even expecting central banks around the world to lower rates in order keep markets stable.
Not only is BAC doomed to miss out an additional interest income, but the bank is also likely to lose money from its investing arm as well. A volatile market and uncertain conditions will keep investors from making moves, but more importantly, it will also make it less appealing for BAC corporate clients to go through with mergers, acquisitions and IPOs — all of which generate hefty fees for BAC.
Blue-Chip Stocks to Sell: General Electric Company (GE)
The industrial sector was also hammered by the Brexit vote as investors questioned what kind of impact the leave-vote would have on exports.
General Electric Company (NYSE:GE) execs spoke out against the Brexit before the vote, warning that a vote to leave would put the U.K. in a precarious economic position. But the firm was also hoping to sway voters on its behalf, as the Brexit will be very damaging for the American industrial firm.
For one, GE is going to struggle against currency headwinds, as the dollar gets stronger against both the euro and pound. The company has 90,000 European employees and 40 U.K.-based plants.
Not only that, but GE is also up against more legislation, differing regulations from country to country and a fractured digital market. The company recently announced plans to help Europe develop a thriving Industrial Internet, something that will be a challenge should the EU break apart further.
Blue-Chip Stocks to Sell: Celgene Corporation (CELG)
The healthcare sector is typically somewhat insulated from a volatile market because the demand for new treatments is relatively stable. That has made blue-chip stocks in this industry popular among investors trying to play the Brexit in their favor.
However, U.S. biotechs with exposure to Europe are likely to feel the pain of the U.K.’s exit from the EU. This is especially true for Celgene Corporation (NASDAQ:CELG), which according to Jefferies has a 37% exposure to the EU.
The issue that drug makers like CELG will have stretches far into the future as the U.K. works out just how it will make a break from the EU. At the moment, the European Medicines Agency is responsible for drug approval across the EU.
However, once the Brexit is complete, it’s anyone’s guess who will approve new treatments and whether regulations will differ in the EU and the U.K. The new regulatory environment will be less efficient and thus costlier for Celgene as it works to get treatments approved in both the EU and U.K.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities
