The Brexit is causing bloodshed in the financial markets. After British voters dealt a blow to prime minister David Cameron and his camp of EU proponents, reality has already begun to settle in. European stock markets were in disarray on Friday, and the British pound was in free-fall as well, slumping to a more-than-30-year low against the U.S. Dollar. The U.S. stock market followed the lead of European stock indices, with stocks across the board in the red. The Dow Jones Industrial Average closed 3.39 percent lower on Friday, while the S&P 500 crashed 3.59 percent. It was not a good day for stocks, or was it?
That depends on the perspective, really. The Brexit has created new uncertainty in the stock market, and investors hate nothing more than uncertainty. As a result of the referendum, investors will likely have to live with a period of increased market volatility. Investors are presently reevaluating Britain's future economic role in Europe, and while the pound devaluation implies expectations of lower growth and higher inflation for Britain moving forward, only time will tell which direction stock markets will take.
Buy Income Vehicles
However, periods of heightened market volatility are periods in which buyers with high cash balances have all the power.
In my last piece on the Brexit meltdown I discussed which high-yield income stocks investors may want to keep a close eye on. Emotionally-fueled stock market selling and growing levels of investor anxiety can wash up some good bargains anywhere, though.
While my last piece centered on high-yield income stocks in the BDC, and REIT sectors, auto manufacturers have gotten clobbered on Friday, too. Ford Motor's (NYSE:F) shares, for instance, crashed ~7 percent yesterday, and General Motors (NYSE:GM) slumped ~5 percent on concerns over a recession in Britain.
That being said, though, it is time for a reality check: Both automakers produce the overwhelming majority of their pre-tax profits in North America, not in the U.K. For instance, in the 1st quarter of 2016, Ford Motor's pre-tax profits in North America hit $3.08 billion compared to Europe's pre-tax profit share of just $434 million. The truth is that Ford's business does not rise and fall with a recession in the U.K.
Dividend Yield Is Approaching 5% Again
Ford Motor is worth keeping an eye on in my opinion. Even in light of the latest news, I think the automaker will want to maintain its dividend payout which stands at $0.15/share. In absence of a revision of its earnings guidance for 2016 in light of the Brexit, I think Ford Motor continues to deserve the benefit of the doubt. Thanks to the market meltdown on Friday, an investment in Ford Motor yields almost five percent again.
Automakers were thrown under the bus on Friday after Brits voted for the separation from the European Union in Thursday's referendum. Though Britain won't immediately leave the EU, the vote has significantly increased uncertainty in the financial and currency markets. The devaluation of the British pound and concerns over a recession have hurt companies across the board. That being said, though, there is a large emotional element included in the current market correction, and chances are that investors are overreacting right now. Ford Motor still looks like a solid income investment over the long haul to me. Most of Ford's profits are further created in North America, and not in the EU. Buy for income.
Disclosure: I am/we are long F.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.