Preparing your portfolio for Brexit might seem like a daunting prospect at first, but it doesn’t have to be. There are many different companies listed in the UK that have a global presence, particularly in the resource sector. These are unlikely to be impacted at all by Brexit as they conduct the majority of their business overseas and only have limited functions in the UK.
Take Glencore (LSE: LON:GLEN) for example. This is the world’s largest commodities trader, and most of its business is conducted outside of the UK. I think the impact on the company from any form of Brexit will be relatively limited as it has no direct exposure to the UK economy.
That’s why I am recommending this business as a great way to protect your portfolio from Brexit. The company might not be a household name, but the copper, coal, zinc, cobalt and nickel it produces and moves around the world are essential commodities in the global economy. And demand is unlikely to falter just because the UK crashes out of the European Union.
Brexit worries Shares in Glencore have been hit by the same Brexit-inspired caution affecting all UK shares at the moment. It’s currently dealing at a forward P/E of just 11.7, which appears to undervalue the business based on its growth prospects. That’s because the shares have a PEG ratio of 0.8 — a ratio below one implies growth at a reasonable price.
On top of this attractive valuation, the stock also supports a market-beating dividend yield of 4.6%, which analysts believe will rise to 5.1% in 2020.
An aggressive share repurchase plan is also underway. In February, the company announced a buyback programme worth up to $3bn, as management wants to focus on returning cash to investors rather than spending funds on new deals. I think this is the right course of action, considering the languishing share price.
With earnings insulated from Brexit and cash returns ramping up, it looks to me as if Glencore could be one of the best investments to buy today.
Output growth Another internationally-focused company that might help protect your portfolio against Brexit uncertainty is oil explorer Cairn Energy (LSE: CNE).
This company has also seen its shares come under pressure recently after it reported a massive $1.1bn loss for 2018, mostly due to a substantial write-down of the value of its assets.
However, Cairn’s outlook is improving. Production is expected to increase this year to as much as 22,000 barrels of oil per day, (boepd) from last year’s 17,500. If it gets it right, the company can be extremely profitable as its production cost is relatively low.
For 2018, Cairn reported an average production cost of just $20.50 per barrel, compared to a sale price of $68. Annual oil and gas sales last year totalled $396m.
City analysts are expecting the group to report a total net profit of $81m for 2019. That puts the stock on a forward P/E of 15.9, which is hardly dirt cheap. But just like my Foolish colleagues Peter Stephens and Harvey Jones, I think the company’s highly cash generative assets around the world mean it has a bright future.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019