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UK stocks are well represented in my portfolio. In fact, they are the main part. And that doesn’t seem to be changing. This is because even though the pound is weak, I am concerned about investing in non-UK-listed stocks.
So why is it a concern? Well, if the pound starts to appreciate, and I own a dollar-denominated stock, I see my profits wiped out by currency fluctuations.
As a result, I am focusing on opportunities in the UK. But are there some stocks that could actually benefit from the pound’s weakness? Let’s take a look.
Why is the pound weak?
The pound’s weakness reflects concerns about the health of the UK economy. The UK is expected to be among the slowest growing developed countries in 2023 and will experience a 0.4% contraction in size.
The pound is certainly stronger than under Liz Truss, but the impact of her government still lingers. Investors were concerned that the truss plans would not be fully funded and this, in turn, would increase long-term government borrowing, particularly from abroad.
Meanwhile, amid worries of a global economic slowdown, the dollar has strengthened – although there are signs it could top out.
Which companies can benefit?
well, 75% FTSE 100 Income comes from abroad. And it makes sense when you think about it. The largest UK-listed companies are not entirely UK-focused.
So companies that earn income overseas are likely to be somewhat insulated from the economic difficulties facing the UK and will see an increase in income when converted back into pounds.
For example, the pound is currently about 13% weaker than the dollar a year ago. As such, USD sales will increase in value when converted back to pounds.
Top pick: Diageo
In January, Diageo Said the strong pound had a negative impact on earnings. However, things have changed since then. Now, £1 is worth just $1.20, down from $1.35 a year ago.
A weak pound may also increase costs, but a 13% fluctuation will certainly improve revenue generation. A third of its sales ($6bn) come from North America. This is double the firm’s earnings in Europe. But buyers who switch to cheaper brands remain at risk.
Another choice: Unilever
Unilever is a fast-moving consumer goods outfit sold in 190 countries worldwide. The London-based giant says 3.4 billion people use its products every day. Meanwhile, 58% of its revenue comes from emerging markets — which provide healthy exposure to growth markets — while about 17% comes from the US. Yet it faces the same risks as Diageo.
Third Pick: Hellion
Hellion New to the FTSE 100 That is because it was created with demerger GlaxoSmithKline earlier this year. Helion operates in more than 100 markets worldwide and has an established presence in several market segments. The London-based firm has strong partnerships with mass retail and pharmacy chains in the US. It also comes with risks, especially linked to legal issues Zantac Medicine
I actually owned all three of these stocks, and have topped my positions this fall. Moreover, all three have protective properties that help me through depression.
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