As the market has fallen following the United Kingdom’s vote to exit the European Union, investors are becoming fearful of what may be in store and where to invest in the current market environment. While the U.K. is not shutting down, its new negotiation of trade agreements will challenge its own trade balance, allow for other countries to take a stronger lead and weaken its currency.
Since Friday’s U.K. exit announcement, the leading U.S. indexes have fallen about 2.5% while the FTSE 250 is down 7.61%. Stocks in Europe could fall farther; however, it seems the U.S. is recovering with the drop in U.S. stock valuations primarily a factor of surprise. Although the leading indexes have lost approximately 2.5% since Friday, they were up nearly 2% in the four trading days prior to the U.K. exit vote.
Overall, as the market starts to recover from losses, many market specialists are reporting that the direct effects may not cause major losses for the U.S. equity market with the dollar strengthening only slightly against the euro and pound. For investors, this market selloff could put stocks in oversold territory possibly presenting buying opportunities.
Bill Nygren (Trades, Portfolio) of Oakmark is taking this position and in a discussion with CNBC reported Alphabet (GOOGL, Financial) and bank stocks among his top stocks to buy. In Nygren’s opinion, Alphabet is undervalued. In its most recent earnings report for the first quarter, the company reported revenue of $20.26 billion, an increase of 17.4% from the comparable quarter. Earnings per share were $7.50, an increase of 16% from the comparable quarter. Nygren reports that, while the company’s revenue and earnings have been growing substantially, its recent investments and unrealized earnings also have a lot to add in the near term.
Nygren is also buying U.S. bank stocks, specifically Citigroup (C, Financial). While Brexit is affecting global banking stocks specifically, the recent release of U.S. bank stress tests showed all 33 banks with sufficient capital. Nygren favors Citigroup because of its cash flow and capability for repurchasing stock.
Overall, while Brexit has increased market risk causing many to seek safe havens in U.S. Treasurys, investors looking to benefit from potential overselling will find a number of stocks at even deeper discounts than prior to the Brexit vote.
On Monday, Nygren discussed his buy list with CNBC.
Disclosure: I do not own shares of any stocks included in this article.
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