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Time to be British?



September 13, 2011 – Comments (1)

Board: Value Hounds

Author: kelbon

Is it time to take a good look at British stocks?

Britain, is and isn't, part of Europe. They belong to the European community, but they never adopted the Euro and have stuck with the good old British Pound Sterling.

There is real potential for a Euro crisis, which may become—in a worse case scenario—a self-fulfilling prophecy. Such a scenario seems fueled by fear and misperception heaped on top of real fiscal troubles. Unfortunately, individual countries in mainland Europe are out of ammo to fight back, in as much as they can't choose to print money to stimulate their economies or chase away the prospects of potential defaults because fearful investors are demanding high interest rates on government debt. Fear and therefore the necessity for higher interest rates to placate investors is more likely to cause a crisis than avert one—a case of stepping on the accelerator when you should be hitting the brakes perhaps.

Britain, on the other hand, has the ability, if not the will at the moment, to print money to keep the wolves from the door. Even though printing money tends to get people jittery about runaway inflation it doesn't seem that likely given a stalled economy. Workers, after all, don't have the leverage to demand higher wages in the present climate, or the additional money to pay for much pricier goods.

Anyway, British stocks are getting dragged down along with their European cousins, a case perhaps of proximity rather than contagion in some respects. There seems to be some reasonably priced British stocks that pay generous dividends selling at attractive prices.
Off the top of my head:
Royal Dutch Shell
National Grid

To muddy the waters further, these companies are often multinationals, and what is more, are often headquartered in more than one country. Take Royal Dutch Shell: British/Dutch with operations in 50 countries. Unilever has two different ADRs: Unilever PLC and Unilever N.V. The trick to differentiating the ADRs is if the company has PLC (Public LImited Company) after its name, it's the British flavor.

And then there's the issue of currency exchange rates. I'm inclined to think that the British Pound is likely to fluctuate less against the dollar (as there's no chance of the country defaulting) than the Euro, where there's a real chance of defaults, with Greece heading up the line. Perhaps, when all is said and done, the best bargains now may well be mainland European stocks, Telefonica, for instance, but that is probably contingent on the dust settling and a full blown Euro crisis being averted, which, realistically, isn't a 100% sure thing at this juncture.

I've been told that there is no withholding tax on the dividends of British ADR's, which is irrelevant for taxable accounts, but in tax free accounts like IRAs what you see is what you get.

Food for thought perhaps…


1 Comments – Post Your Own

#1) On September 14, 2011 at 8:21 AM, lemoneater (57.21) wrote:

I like Tesco TSCDY. PK :)

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