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5 Stocks to Combat Brexit Fears

Fresh polls on Brexit showed that support for Britain remaining within the European Union was gaining strength. Several market watchers believe that this is an outcome of the death of the Jo Cox and sentiment arising from the incident. Others cited advertisements from Brexit proponent Nigel Farage as the reason for a swing in favor of the "remain" campaign.

However, the EU and U.S. companies with significant investments in Europe are bracing themselves for the impact of a possible Brexit. Adding stocks of U.S. companies which conduct most, if not all of their business, within the country looks like a prudent option at this point.

Threat to the EU's Stability

Despite the optimism arising from fresh polls, EU officials have planned to conduct a series of emergency meetings in a situation where Britain decides to leave the economic bloc. The intention of these meetings is to mitigate the fear of a ripple effect on relatively weaker economies. Polls conducted earlier had shown that the "leave" side held an edge (read: 5 British Stocks to Watch as Brexit Vote Looms ).

Among the members who are at high risk is Ireland, with close economic links with both Britain and Portugal. Meanwhile, Germany's foreign minister Frank-Walter Steinmeier has said that the EU must work to prevent the disintegration of the economic bloc in the event of a Brexit. Such a move could cause irreparable harm to the economic bloc and spark off other such events.

Companies Investing in Europe at Risk

Meanwhile, the entire world and several U.S. companies in particular are watching events in Britain with bated breath. The reason for this is simple. In 2015, the U.S. had exported goods worth $56 billion to Britain. However, that figure seems insignificant to the $588 billion invested by U.S. companies across several sectors within that country.

On the other hand, Britain provides employment to nearly a million workers within the U.S. and has invested half a trillion dollars in the economy. In the case of Caterpillar (CAT), the company has 16 plants and 9,000 employees within the United Kingdom. Most of the goods produced here are exported to Europe and other countries across the world. But that state of affairs would cease to exist in case Britain decides to exit the E.U.

U.S. Remains the Best Bet

Despite recent weaknesses, the U.S. economy continues to remain in relatively better shape compared to other countries. Last Thursday, the Organization for Economic Cooperation and Development (OECD) said the U.S. was staging one of the best comebacks among all developed nations. According to a report released by the OECD, production has exceeded its highest level before the crisis by 10%. Additionally, the labor market is in good health largely due to strong levels of private sector employment.

This may seem difficult to believe at first glance, but most market watchers are expecting a strong rebound. However, OECD data shows that the U.S. remains ahead of all other developed nations by a wide margin. Compared to the first quarter of 2008, the U.S. economy has displayed growth of 10.85% till the same period this year. In comparison, the Eurozone has grown by 0.64% and Japan by 0.06%.

Our Choices

Optimism has increased about the chances that Britain may opt to remain within the E.U. But the events related to this referendum have proved that the economic bloc may have turned brittle, particularly after the migrant crisis.

This is why it is important to invest not just in U.S. companies, but in those who conduct most of their operations within the country. At the same time, it is important to pick winning stocks.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

Dean Foods CompanyDF is a leading processor and distributor of milk and other dairy products in the U.S. as well as a leading manufacturer of various specialty food products.

Dean Foods has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 24.7% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 11.47, lower than the industry average of 28.29. Its earnings estimate for the current year has improved by 2.6% over the last 30 days.

Dave & Buster's Entertainment, Inc.PLAY is an owner and operator of venues in North America that combine dining and entertainment.

Dave & Buster's Entertainment has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 29.2% for the current year. Its earnings estimate for the current year has improved by 8.4% over the last 30 days.

Magellan Health, Inc.MGLN is the country's leading behavioral managed care organization. Its customers include health plans, corporations and government agencies.

Magellan Health has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 6.2% over the last 30 days.

Sanmina CorporationSANM is engaged in providing electronics contract manufacturing services, logistics and components on a global basis.

Sanmina has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 13.6% for the current year. It has a P/E (F1) of 11.60, which is lower than the industry average of 13.17. Its earnings estimate for the current year has improved by 3.8% over the last 30 days.

Tallgrass Energy GP, LPTEGP is engaged in the transportation, storage and processing of natural gas, the transportation of crude oil and the provision of water business services primarily to the oil and gas exploration and production industry through its subsidiary.

Tallgrass Energy has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 90.6% for the current year. Its earnings estimate for the current year has improved by 4% over the last 30 days.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

DEAN FOODS CO (DF): Free Stock Analysis Report

MAGELLAN HLTH (MGLN): Free Stock Analysis Report

DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report

SANMINA CORP (SANM): Free Stock Analysis Report

TALLGRASS ENRGY (TEGP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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