October 21, 2019 BARRON’S 9
Faking Brexit
NOW IS THE CRUCIAL MOMENT. A BREXIT DEAL IS AT
hand. If it passes, and is put into force before the
deadline of Halloween in America, there is a chance
thatbyThanksgiving,conversationsonthematterwill
have petered out to a few hopeful comments about
whatitmeansforgrossdomesticproduct.Ifso,those
ofuswhohaven’ttakenthesix-monthsabbaticalfrom
workandfamilythatseemsneededtofigureoutwhattheheckisgoing
on over there could yet pass unnoticed.
Dangerlurks,however.Thesenextfewdayswillbring
more Brexit talk than usual: clients, Facebook friends,
Gary from sales, who can’t believe you haven’t seen Life
ofBrian .Here’salast-minuteguideforAmericaninves-
tors pretending to understand Brexit.
Brexitisaportmanteau,ormushingtogetherofwords,
likebromance,turducken,andChunnel.ItmeansBritish
exit, in this case from the European Union, a trade bloc
whosemembersareunitedineverythingexceptlanguage,
culture,politics,wealth,fiscalviability,historicharmony,contiguousge-
ography, and in some cases, currency.
Evenunderamiddle-groundoutcome,BrexitcouldcosttheBritish
economy6.5%ofGDP,UBSreckons.Butthat’scumulativelyoverseven
years,takenasapercentageofoneyear’sGDP.Andmorethanhalfof
ithasalreadybeenendured,startingin2016,whenBrexitwasbornas
a you-wouldn’t-dare referendum, and voters dared.
Muchofthediscussionhasseemedlikeanegg-centereddebate:soft
orhard,butitwon’tbeovereasy.AsoftBrexitmeansstayingclosely
aligned with the EU on trade, and is favored by Britons who oppose
leaving.Hardmeansacleanbreak,andthatcouldcostanestimated9%
of GDP cumulatively, along with 450,000 jobs.
Protip:IfaBrexitdiscussiongetstoodetailed,scaretheotherparty
offbyinsistingthatahardexitwould“forcetheBOEbacktotheZLB
withmoreQE.”Justincaseyourbluffiscalled,that’sBankofEngland,
zerolowerbound,andquantitativeeasing,anditmeansifyouBrexit-
’til-you-wrexit,spenderswillneedtobestimulated,andsavers,scolded.
Don’tgetboggeddownwiththeplayers.Theyturnovertooquickly
tolearntheirnames.There’saguynamedBorisJohnson,whopeople
comparetoDonaldTrump,becausehe’sbrashandhasamopofblond
hair.“We’vegotagreatnewdeal,” hetweetedthispastweek,whichis
classic Trump, but then, sometimes he jogs in shorts, which is not.
Anyhow,thenewdealtriestosolvetheissueofthe“Irishbackstop,”
whichhasnothingtodowithoffshoretaxloopholes,orleavingparties
withoutsayinggoodbye,andeverythingtodowithavoidingnewchecks
or infrastructure between Ireland, which is in the EU, and Northern
Ireland,whichispartoftheU.K.ThispartofBrexitisthemostsensi-
tive, and acceptance of the new deal is not assured.
Stockstendtopriceinworst-casescenarios,andanythingotherthan
ahardBrexitcouldleadtoupsideforattractivelypricedU.K.names.
UBS highlights home builders Berkeley Group Holdings (ticker:
BKG.UK) and Taylor Wimpey (TW.UK), retailer Tesco (TSCO.UK),
and Lloyds Banking Group (LYG).
IfyouenduptrappedinaBrexitconversationandcan’tremember
thosecompanies,Britishnamesareeasytoinventbycombiningsylla-
blesthatsoundvaguelyprofane,butaren’t.Justtellpeopleyoubought
someBottomsworth&Wiggles,andarethinkingaboutwritingtheputs
on A.J. Fufferton. Both look oversold.
A portfolio manager popped bythispastweekandtalked
about three stocks he likes on three continents. Damon
Ficklin comes from Polen Capital in Boca Raton, Fla.,
which oversees $30 billion across separate accounts and
mutual funds. He used to work on Polen Growth fund
(POLRX)andhasmovedtoPolenGlobalGrowth(PGIRX),
whichistiny,buthasreturned18%ayearoverthreeyears,
rankingamongthetop2%ofpeers,accordingtoMorning-
star.
Ficklinisbullishon CSL (CSL.Australia),basedinAustralia; Essi-
lorLuxottica (EL.France)inFrance;and Zoetis (ZTS),inNewJersey.
Ifthereisathemehere,it’sprosperous,pricey,andpeppy.Allthreego
forover30timesthisyear’sestimatedearnings,andhaveagoodshot
at growing earnings at a double-digit pace for years to come.
CSLspecializesinIVIGorintravenousimmunoglobulintreatments.
Thoseinvolveobtainingantibodiesfromthebloodofhealthypeopleand
deliveringthemtopeoplewhoseantibodiesarecompromisedbydisease,
orbychemotherapy.Thecompanyalsohasahandinfluvaccines.Reve-
nues have grown at a compounded 9% a year over the past decade.
Luxottica of Italy was once the subject of a 60 Minutes piece on
whether it controls too much of the market for eyeglass frames. That
was before last year’s merger with French lens giant Essilor, to form
EssilorLuxottica. Europe, it seems, has figured out a new way to tax
Facebook and Google—by charging more for our ability to see our
screens. Ficklin says once these companies integrate their supply
chains, earnings growth could find a higher gear. I bet.
Zoetismakesmedicineforcompanionanimalsandlivestock,andhas
exposuretorisingwealthintwoways:morespendingonpetsandin-
creasedconsumptionofprotein.Animaldrugstendnottofaceasmuch
generic competition as human ones, even after patents expire. Zoetis
isbranchingoutintotreatmentsfornewailments,likeanimalpsoriasis.
Iftheyaregoingtostarttreatinghumanstuffinpets,thepossibilities
seemendless.Thereisanxiety,attentiondeficit,andtheoneinthecom-
mercialswheretheguyholdsupcrookedvegetables,butheisn’ttalking
about cooking.
email: [email protected]
Stockstendtopricein
worst-casescenarios.
Adealcouldleadto
upsideforattractively
pricedU.K.names.
Streetwise
By Jack Hough