Even as the country was preparing for national elections and the commencement of Brexit talks, Britain’s rate of growth slowed sharply in the first quarter. This could not have come at a worse time since it was economic resilience which had bolstered the country in the aftermath of last year’s surprise Brexit vote.
However, data released immediately after the GDP report depict a brighter economic picture. Gains in manufacturing, services and construction signal all-around economic improvements. Additionally, a closer look at GDP data indicates that the situation is not as bad as it seems. This is why it makes good sense to invest in British stocks at this time.
Data on Services, Manufacturing, Construction Improve
Last week, data released by IHS Markit showed that its services PMI for Britain increased from the level of 55.0 recorded in March to 55.8 in April. This was the sharpest pace of growth experienced in four months and is well ahead of the pace experienced for much of last year. According to some economists, this level of services growth is consistent with a quarterly pace of 0.7%, well above the 0.3% pace experienced in the first quarter.
This was the third in a series of positive reports about the economy released last week. The manufacturing sector expanded at its fastest pace in three years in April and exceeded most expectations. The IHS Markit CIPS manufacturing PMI increased from 54.2 to 57.3 in April. Data from IHS Markit also showed that the pace of hiring increased even as companies boosted production levels.
Additionally, construction growth for the country touched its highest level in four months. IHS Markit’s construction PMI increased from 52.2 in March to 53.1 in April. Construction also reported a pickup in hiring even as April’s expansion was attributed to an increase in civil engineering and residential construction activity.
Is Q1 GDP Data Really Disappointing?
At first glance, the first quarter GDP release seems rather dismal. Not only was the quarterly expansion of 0.3% a decline from the preceding quarter’s figure of 0.7%, it also came in below most forecasts, which were hovering around 0.4%. But the situation is not as bad as it seems. Firstly, the annual rate of growth was recorded at 2.1%, which is only a shade below the official projection of 2.2%.
Additionally, real incomes experienced an increase while production and manufacturing expanded at a pace which exceeded the rate of overall growth. Additionally, late Easter holidays may have led to problems in adjustment, which in turn led to the government reporting a smaller GDP increase. Despite this factor, expenditure on food and beverages moved higher.
A succession of economic reports released last week indicates that the health of Britain’s economy has improved. Improvements have been witnessed across services, manufacturing and construction, which implies that better times are ahead for the economy.
Picking British stocks looks like a prudent option at this point. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Unilever PLC (UL - Free Report) is world leader in the FMCG industry.
Unilever has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 17.3% for the current year. Its earnings estimate for the current year has improved by 10.4% over the last 30 days.
Associated British Foods plc (ASBFY - Free Report) is a diversified international food, ingredients and retail group.
Associated British Foods has a VGM Score of B. The company has expected earnings growth of 10% for the current year. Its earnings estimate for the current year has improved by 4.8% over the last 30 days. The stock has a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
RELX PLC (RELX - Free Report) is engaged in providing information and analytics solutions on a global basis.
RELX has a Zacks Rank #2 (Buy) and a VGM Score of A. Its earnings estimate for the current year has improved by 1.5% over the last 30 days.
Pearson plc (PSO - Free Report) is a provider of educational materials and learning systems on a global basis.
Pearson has a Zacks Rank #2 and a VGM Score of A. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 14.85, lower than the industry average of 17.50. Its earnings estimate for the current year has improved by 2.4% over the last 30 days.
BT Group plc (BT - Free Report) is one of the world's leading providers of communications services and solutions.
BT Group has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 3.3% for the current year. Its earnings estimate for the current year has improved by 2.2% over the last 30 days. The stock has a P/E (F1) of 10.71, lower than the industry average of 16.20.
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