Now we've had it confirmed that the UK government is taking us into a hard Brexit, investors have started thinking about which sectors to avoid and which could do relatively well. While I do think a lot of the damage has already been done and there are bargains to be had among hard-hit shares, like banking, insurance and housebuilding, the one I'm really going to keep away from is retail.
It's sectors like retail that rely heavily on consumer confidence and discretionary spending, that will surely feel the pinch when the inflationary effects of the fall in the value of the pound really take effect -- we're already seeing it in rising prices of some imported products, but it's hardly begun.
Tough times for retail
The latest data from the Office for National Statistics is depressing. Retail sales fell 1.9% in December, from November, which doesn't make for a great Christmas period. Apparently, Black Friday is partly responsible, capturing a lot of shoppers' attention, and December sales were actually up 4.3% on the previous year. But the overall figures were worse than expected.
We've already seen one casualty in the shape of Next, which is widely thought of as one of our best high street retailers. In a shock revelation on 4 January, Next told us that sales in the period up to Christmas were below expectations, and that pre-tax profits for the year should be down 3.6% on last year. The shares quickly lost 10%, and at 3,962p they're at their lowest level since 2013 (though, having said that, I actually see a contrarian bargain here now).
In hard times I'd usually suggest supermarkets, but they're facing both a consumer squeeze and fierce price wars from Lidl and Aldi. On a P/E of 27, I don't see Tesco shares as a safe haven. And though J Sainsbury shows a cheaper multiple of 13, profits were forecast to slip even before the Brexit hardening.
A sector to buy?
I'm drawn to infrastructure and support services as a sector that has been lowly valued for some time, and though it not littered with names that regularly make the news, I do see some bargains.
After a slump in 2015, shares in equipment rental firm Ashtead have picked up 56% over the past 12 months on the back of steadily rising earnings. With more growth to come, albeit at a slower pace, I see a forward P/E for the year to April of 15, dropping to 13 a year later, as representing a good price for a very good company.
I see civil engineering support firm Carillion as an even better bargain. Anything related to construction pretty much has pariah status these days, and the Carillion share price has stagnated over the past five years. But we're looking at a P/E of only seven, with dividend yields of 8% on the cards.
Diversified support group Interserve is another favourite of mine, on a P/E as low as five for this year, with 7% dividends expected. Printing firm ST Ives had a bad 2016, with earnings falling and the shares crashing, but that puts it on a P/E of around four and has pushed the prospective dividend yield to 6%.
If you're looking for Brexit bargains, you really could find them in the diverse collection that is the Support Services sector.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.