Should they stay or should they go? British voters go to the polls on June 23 in the infamous Brexit referendum to decide on whether the U.K. stays in the European Union or goes at it alone, free of Brussels meddling. As I’m writing this, the polls are too close to call. It’s a statistical dead heat between the stay and leave camps.
There is a lot riding on the outcome. Should a Brexit happen, Scotland may opt the leave the U.K. and join Europe on its own. And President Barrack Obama made it very clear, in no uncertain terms, that the “special relationship” between the U.S. and U.K. would be a whole lot less special without the U.K.’s influence in Europe. So little England could find itself very alone in the world.
But on the other hand, can you really blame the U.K. for wanting to bolt? The European Union is a zombie economy bogged down by high debts, lousy demographics and stifling regulation.
I expect cooler heads to prevail and for the U.K. to stay put. But what if they don’t? What if British voters decide to call it quits?
A Brexit might not be much of a factor for a lot of British stocks, particularly those with diversified global operations. But the companies that depend heavily on exports to Europe would face a very uncertain future.
So, with no more ado, here are three British stocks to sell if a Brexit happens.
British Stocks to Sell if a Brexit Happens: Royal Bank of Scotland Group PLC (RBS)
Should Britain opt for a Brexit, British banks will get hit particularly hard, according to analysis by Goldman Sachs. The thinking is that banking profits are tied directly to domestic demand, and if Britain has a sharp contraction, demand for loans will shrink and the number of distressed borrowers would rise.
I’d also add that a potentially unstable pound sterling could add an additional wrinkle of uncertainty. All in all, navigating a bank through a Brexit would be no easy task.
One bank in particular that you might want to dump is the Royal Bank of Scotland Group PLC (RBS). RBS is one of Britain’s weaker banks, already on the ropes after the 2008 meltdown and the European sovereign debt crisis that followed. If the U.K. economy gets dicey, you’ll want to get out of all British banks and the weaker ones in particular.
RBS has made it a core objective to scale back its international presence and become a more British-centric bank. That sounded like a good idea … right up until a Brexit become a possibility.
If you own RBS, you’ll want to dump it if the British bail.
British Stocks to Sell if a Brexit Happens: Vodafone Group Plc (ADR) (VOD)
British telecom giant Vodafone Group Plc (ADR) (VOD) is, by all accounts, a stock I’d normally love to own. It has a stable stream of cash flows, it pays a fantastic dividend yield of 5.4% and it has a long history of rewarding its shareholders.
Unfortunately, it’s one of the British stocks most exposed to Brexit risk. Vodafone has extensive operations throughout Europe. About half of its revenues come from Europe ex-U.K.
Now, in some ways, a Brexit wouldn’t be all bad.
If the pound were to drop more or less permanently lower vs. the euro, Vodafone’s European revenues would be worth a lot more when translated into pounds. But unfortunately, if Britain were no longer part of the European Union, it’s questionable whether Vodafone would continue to enjoy the same access that continental rivals like Telefonica S.A. (ADR) (TEF) enjoy.
Better safe than sorry on this one. If we have a Brexit, dump Vodafone.
British Stocks to Sell if a Brexit Happens: Unilever plc (ADR) (UL)
Unilever plc (ADR) (UL) is really a quirky company. It was an example of European integration long before the European Union was dreamed up.
The company, which makes everything from canned soup to body spray, was formed in a merger in 1930 between a Dutch margarine company and a British soap maker. The structure has always been an odd one, with dual listing in the Netherlands and the U.K.
Even if the U.K. and Netherlands split up in a Brexit, Unilever will continue to exist as a combined company. I have no doubts about that.
But Unilever’s high exposure to Europe at a time of pending currency uncertainty adds a new element of risk. There is also the potential for anti-British backlash from European consumers should the Brits effectively flip the middle finger across the English Channel.
Unilever gets more than a quarter of its revenues from Europe. And if that’s not a big enough concern, the company gets nearly 60% of its revenues from emerging markets, which are already in a crisis that will likely only get bigger following the uncertainty of a Brexit.
So, if it looks like a Brexit is happening … dump Unilever. You can always rebuy it later.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long UL and TEF.