Post-Brexit — Great Britain's exit from the European Union (EU) — the global market is in a roller coaster ride due to a spike in volatility.
Market analysts believe that Brexit would lead to a weaker currency, owing to worries about Britain's trade with the EU, which could suffer if new trade barriers are raised. This would lead to a negative impact on Britain’s Gross Domestic Product, further hitting several sectors like retail and financial services among others and therefore have an unfavorable impact on British equities.
Post-Brexit, investors have become jittery and are resorting to safe haven stocks like tobacco and gold. Further the addictive nature of these stocks helps them maintain a stable share and revenue even in times of downturn. In this scenario majority the tobacco stocks have performed well. Companies with an all American exposure like Altria Group Inc. MO and Reynolds American Inc. RAI are insulated from the Brexit turmoil that is rattling the whole of Europe.
Shares of cigarette manufacturer Altria hit a new 52-week high of $68.00 on Jun 24, recording a healthy year-to-date return of 8.33%. Further, Reynolds with a major exposure to America, also gained almost 1% following the Brexit decision.
Philip Morris in the Eye of the Brexit Storm
Philip Morris International Inc. PM, however, took a hit post-Brexit mainly due to its significant exposure to the European market. Its share price plunged 4.1% on Jun 24, 2016 after Britain decided to exit the European Union.
Philip Morris generates a significant portion of its revenues from European sales. Net revenue from the European region amounted to $26.6 billion in 2015 – more than 35% of its total sales. Hence, any economic disruption affecting European consumers' ability to buy cigarettes and other tobacco products can affect the company.
Philip Morris carries a Zacks Rank #3 (Hold).
Stock to Consider
A favorably ranked stock in the consumer staples sector is Tyson Foods Inc. TSN, carrying a Zacks Rank #2 (Buy).
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