Markets are still reeling from the shock delivered by last Thursday's Brexit vote and a petition is circulated in the U.K. calling for a second referendum. While it is a fun exercise and a way for the Remain voters to let off some steam, the reality is that the decision to leave the EU was taken in a democratic vote, freely expressed, and nothing can change that.
Then there are those who say the referendum is not legally binding -- this was clear from the beginning -- or who point out that Scotland and Northern Ireland could break away from the U.K. as a consequence of the U.K. leaving the European Union.
Also, speculation abounds about the reasons why U.K. Prime Minister David Cameron delayed triggering Article 50 of the EU Treaty, which would start the withdrawal process, despite saying in February in Parliament that if the vote turns out in favor of Leave the process should start soon after the vote. Some commentators say a compromise that would mean the U.K. would stay is still possible.
But this is all speculation right now. The reality is that the vote has widened the rift between the U.K. and the EU and it cannot be reversed without compromising the very idea of democracy.
What should investors do? For the moment, not much. In the U.K., the pound and banking stocks are still searching for a bottom and it is probably too early to think about what stocks to buy. There have been various warnings from companies of the effect of Brexit already.
London-focused real estate agent Foxtons sent its shares down 19% after issuing a profit warning blaming referendum uncertainty, while low-cost airline EasyJet saw a 15% fall after saying that additional consumer unease is likely to hit revenue per seat.
But perhaps preparing a shopping list of companies in the rest of the EU is a good idea as the post-referendum volatility is creating incredible opportunities. It is very possible that the Brexit vote will open the eyes of policymakers in Europe to the consequences of rigid rulemaking and prolonged expenditure cuts and could make them offer some fiscal stimulus to boost growth.
Austerity was already in the rearview mirror for more and more EU policymakers and this may serve to hasten the process. Besides, the European Central Bank's policy of unprecedented asset purchases seems to be having increasingly positive results: the rate of growth for business loans increased to 1.4% in May from April's 1.2%. That was before the uncertainty caused by Brexit, but if the trend continues investment could rise further in the eurozone.
I am not saying that investors should jump in now, but it's a good time to start looking. The trouble is, of course, that it is difficult to know which companies are likely to do well in this climate of uncertainty. But there are some companies that could look tempting, especially across the English Channel. So, let's take a look at three French stocks that could make it on an investor's shopping list:
- Total (TOT), the French oil and gas giant, has a few things going for it. It has a dividend yield that is not to be ignored, at more than 5%. Operationally, its exploration and production unit costs are low, according to analysts at Societe Generale, who have a "buy" rating on the stock. TheStreet.com's Quant Ratings (a stock research service you really should check out) is more careful and has a "hold" rating on the stock, saying that Total has poor profit margins and weak operating cash flow.
- Renault (RNLSY), another French company, could in fact benefit from Brexit. It has a strategic partnership with Japan's Nissan, which owns the factory in Sunderland, the north of England. The falling pound could make exporting these cars cheaper (but domestic demand for them might fall if a U.K. recession follows the vote). Elsewhere, Renault is producing affordable and highly popular cars in Central and Eastern Europe and in North Africa and it could benefit from consumers turning to its cars following the Volkswagen (VLKAY) emissions scandal.
- Publicis (PUBGY), the publishing company, has business in the U.K. and its CEO Maurice Levy said he was "stunned to the point that it did exactly feel as if I had no legs" after the referendum results were announced. But as analysts at Societe Generale pointed out, the company generates almost 50% of sales in North America and it is likely to benefit from the dollar's strength when it translates those back into euros.
It is probably too early to jump into European or U.K. stock markets, but equally investors should remain alert to the opportunities. Here are more Real Money stories on the issue of Brexit to help you decide what to do:
