Big Alcohol, Diageo are BREXIT winners?
Analyst at Goldman Sachs is recommending investments in Diageo, the world’s largest liquor producer, and in British American Tobacco. The giant multinational corporations Diageo, the maker of Johnnie Walker Scotch whisky and Guinness beer, and British American Tobacco (BTI), the owner of Lucky Strike, Dunhill and Pall Mall cigarettes, stand to profit from the consequences of the British exit from the European Union (BREXIT).
BREXIT repercussions are already multiplying, according to numerous reports:
- Credit ratings agencies have downgraded the U.K.’s rating.
- Police report a rise in reports of hate crime incidents.
- Foreigners in the UK feel increasingly subject to xenophobia and racism. Reports of racist graffiti, verbal abuse and hate crimes have increased in the wake of the Brexit vote
- The United Kingdom might break up as Scotland is intent on remaining in the EU.
- Chaos in U.K. politics is obvious, as Prime Minister David Cameron is resigning, and Labour Party leader Jeremy Corbin lost a vote of confidence in his own party.
When others lose, fear for their jobs, livelihoods and security, Big Alcohol and Big Tobacco are profiting – it happens time and again.
Diageo and BAT stocks fell sharply after the Brexit vote but are bouncing back. The Goldman Sachs analyst predicts Diageo and BAT could continue to rebound. According to his report, both stocks have been oversold and might actually benefit from Brexit.
For example, Goldman Sachs assumes that Diageo should get a boost from the fact that the value of the British pound has been tumbling as a consequence of the Brexit vote. The reason is that Diageo is a huge exporter of Scotch, beer and other alcoholic beverages. More than 90% of its sales come from outside the U.K. So the weaker pound will actually boost its earnings from international markets.