Drink Up: A Weaker GBP Will Boost The Scotch Business

Most British stocks have been in free-fall since the U.K. voted to leave the European Union. last week, but Goldman Sachs analyst Mitch Collett believes some British stocks are much better off than others. Goldman has severely cut its outlook for both U.K. and Eurozone GDP growth due to the Brexit, but Collett notes many consumer staples stocks historically trade with a very low correlation to GDP.

“While we continue to believe that structural headwinds will keep European Staples’ organic sales growth at close to trough levels, we recognize that the current macroeconomic uncertainty and low yield environment are likely to sustain sector multiples at close to current elevated levels, driving market-relative outperformance,” he explains.

Related Link: Here's How The Brexit Could Impact The U.S. Housing Market

In fact, amid all the market weakness, Goldman has stepped in and upgraded both British American Tobacco PLC (ADR) BTI and Diageo plc (ADR) DEO.

Goldman upgraded British American Tobacco from Sell to Conviction Buy. Collett points out that the stock currently trades at a forward PE of 16.7x, 18 percent lower than the average for the MSCI Europe Food/Bev/Tobacco index.

The firm upgraded Diageo from Sell to Neutral because of weakness in the GPB combined with more than 90 percent of the company’s sales coming from outside the U.K.

Disclosure: the author holds no position in the stocks mentioned.

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Posted In: Analyst ColorUpgradesEurozoneTop StoriesMarketsAnalyst RatingsBrexitGoldman SachsMitch CollettScotch
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