Is today's 10% riser Churchill China plc the perfect way to profit from Brexit?
With Brexit firmly on the agenda in 2017, where should you invest your cash? Today I'm going to look at two companies which could each help you deliver an investment profit in 2017, regardless of what happens at home.
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The first of these stocks is catering tableware manufacturer Churchill China (LSE: CHH). Its shares rose by 10% this morning after the firm said that its 2016 results would be ahead of expectations.
Profits from strong export performance have been boosted by the weaker pound. Management now expects operating profits to be "ahead of market estimates and well ahead of 2015". The group's net cash balance is also expected to be higher than expected.
Is Churchill 'Brexit safe'?
Today's statement -- just three working days into the New Year -- suggests to me that Churchill is a well-run company with good financial controls.
As a UK exporter, the firm is benefitting from the weaker pound, but this business was already profitable and cash generative before last year's devaluation. Churchill has reported a net cash balance every year since at least 2010, during which time its dividend has risen by 35% and its share price has tripled.
The group exports to Europe, as well as to Australasia and the Americas. One risk is that the terms of these exports could change when Britain leaves the EU. For example, in last year's results, the company said that anti-dumping duties on cheap Chinese ceramics were helping to make its products more competitive in Europe. UK exporters may lose this kind of protection outside the EU.
The other consideration is that Churchill shares already look quite fully priced. The firm's stock trades on a 2017 forecast P/E of about 20 after today's gains, with a prospective yield of 2.3%.
I'd hold onto Churchill shares, but I wouldn't buy more at current levels.
A different approach
Churchill is a relatively small business, with a market cap of just £103m. If the UK heads for a hard Brexit, its export trade could face some short-term disruption.
That's why my second Brexit stock suggestion is pharmaceutical giant GlaxoSmithKline (LSE: GSK). This £77bn behemoth is a genuine multinational. Truly global companies such as this have dedicated teams whose job is to manage political and currency risks. A localised event such as Brexit is unlikely to have much effect on long-term growth.
Glaxo stock also looks good value to me. The shares have pulled back from October's high of 1,745p, and currently trade at about 1,580p. This puts the group on a forecast P/E of 15.7, with a prospective yield of 5.2%.
If you're a growth investor, you may think Glaxo is too large and stodgy to suit your portfolio. But earnings per share are expected to rise by 8% in 2017 -- that's only 2% less than the 10% earnings growth forecast for Churchill.
I believe Glaxo is likely to be a profitable medium-term buy at current levels. The stock also offers the added bonus of a 5% yield. In my view, this could provide excellent protection from the unpredictable effects of Brexit.
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Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
