Three Stocks that are Brexit Buys

06/23/2016 9:06 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

As the markets await the results of the United Kingdom’s referendum Michael Berger, Associate Editor of MoneyShow.com provides his take on what the polls are saying as he highlights three stocks he would buy no matter the outcome of the vote.

The day of reckoning is finally here as the United Kingdom began voting on whether to remain a member of the European Union or split from the 28-nation bloc.

Market futures are pointing to a much higher open as banks and analysts continue to urge investors to remain cautious while the results from the referendum come in.

The polls opened at 7 a.m. and will close at 10 p.m. London time. Final results are expected to be released at 7 a.m. on Friday.

Bookmakers Expect to Remain

Although the polls show a very close race, bookmaker odds tell a different story. Betfair, an online betting exchange is offering odds with an implied probability of 74% for the U.K. to stay in the EU.

In the 2014 Scottish referendum on independence, bookmakers correctly predicted the independence side to lose while some polls had put them ahead.

The bookmakers also were more accurate than the polls in last year’s general election. For weeks, opinion polls showed a tight race while bookmakers were predicting a victory by David Cameron and the Conservative Party.

How to Trade this Event

Even though banks and analysts are warning investors and recommending them to stay cautious, trading opportunities like this are rare and can be capitalized on. We want to highlight three of our favorite stocks as we expect the vote to lead to increased volatility no matter the outcome.

O'Reilly Automotive Inc. (ORLY) is up less than 4% this year and the company continues to deliver impressive earnings results as almost every line-item on its income statement and balance sheet is performing better than expected. O’Reilly is levered to favorable industry fundamentals and company specific catalysts (i.e. rapid sales growth, expanding margins, and robust free cash flow to help fund its share repurchase program) keep us favorable on its long-term outlook.

Rent-A-Center (RCII) has fallen more than 20% during the last quarter and we think near-term earnings estimates will prove to be too conservative during the back half of the year. We expect to see the company pay down a good portion of its debt this year which will improve its financial flexibility. The recent weakness makes RCII’s valuation very attractive and we would be buyers at current levels.

VeriFone Systems, Inc. (PAY) has seen its shares plummet more than 25% during the last month and we believe its current valuation incorporates all relevant bad news when compared to the entire transaction processing sector. We are favorable on PAY because it susceptible to upside pressure from any good news, which should unfold over the next year. VeriFone will benefit from a worldwide point-of-sale upgrade cycle and the stabilization of foreign exchange rates will benefit the company in future quarters.

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By Michael Berger, Editor of MoneyShow.com

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