What impact the UK’s forthcoming general election will have on portfolios is a question that many investors are asking and AJ Bell investment analyst Dan Coatsworth has some answers.
Housebuilders, building materials suppliers, nuclear engineers and renewable energy specialists should perform well if the Labour party wins the election, while rail operators, outsourcing providers and UK oil and gas producers would flounder, he said.
Below, he addresses these sectors one by one, giving examples of companies whose activities complement Labour’s policies.
Industries and stocks that would prosper under Keir Starmer’s Labour
First up, housing. Coatsworth expect Labour to implement changes to the planning system and put greater emphasis on building affordable homes.
“This could be good news for companies involved in the provision of materials to the property sector and for housebuilders,” he said.
“Labour has pledged to upgrade draughty homes and help residents to stop wasting heat by it escaping into the great outdoors. That implies a boost for construction workers, engineers and electricians.”
There are multiple companies on the UK stock market that might benefit from Labour’s housing strategy, for example Travis Perkins, Wickes and B&Q/Screwfix-owner Kingfisher, all of which “could see higher demand from tradesmen and homeowners eager for the bits and bobs needed to spruce up flats and homes”.
But the list of companies that could get busier goes on to include construction groups such Morgan Sindall and Kier, ventilation specialist Volution and housebuilders, for example Vistry and MJ Gleeson.
Moving on to energy, where Labour’s Great British Energy initiative foresees the introduction of tougher measures on fossil fuel producers and a windfall tax on oil and gas projects to rack up £8.3bn. These proceeds will be directed towards wind, solar, hydrogen and carbon capture and storage technologies.
Some of the UK-focused oil and gas operators (such as Serica Energy and Harbour Energy) have already begun reducing their exposure to the UK North Sea, but others have doubled down on their exposure. Ithaca Energy, for instance, has purchased UK assets from Italy’s ENI.
Coatsworth highlighted specialists listed in the UK including Costain, which advises on energy transition work, and environmental services group Ricardo.
But an expected push for nuclear power would also play into Rolls-Royce’s strengths.
“Rolls-Royce has been among the best-performing shares on the UK stock market in recent years as investors bought into its recovery story,” he said.
“Being in a strong position to capitalise on small modular reactors looks like fortuitous timing for Rolls-Royce if Labour gets elected and could potentially act as another catalyst for its share price.”
Calls for the nationalisation of UK railways are creating a “major overhang” for FirstGroup, but ticket seller Trainline should come out of this situation intact, according to Coatsworth. The Labour party has said that it would not revive the Conservatives’ plan for a national retailing app for train tickets.
“Trainline’s shares have already experienced a wobble over potential changes to the UK rail system, but they’ve started to recover,” the analyst noted.
Industries and stocks unlikely to cheer for a Labour victory
Labour was responsible for the previous outsourcing boom and now it might be the architect of its demise, said Coatsworth.
“Starmer wants to bring public services back into government hands, suggesting that waste collection, cleaning, catering and maintenance services and more will no longer be a ripe opportunity for the UK’s army of outsourcing specialists,” he added.
“A lot of people think Conservative politicians awarded lucrative contracts to their friends and associates, and now Labour wants to bring an end to this questionable practice.”
If this is enforced, Serco, Mitie, Babcock and Capita all look vulnerable.
Retail, leisure and hospitality would also struggle. These industries have all benefited from immigration as a source of workers, but both the Conservatives and Labour favour stricter rules on immigration.
“Brexit has already made it harder for certain foreigners to find work in the UK and companies have faced a smaller pool from which to recruit, which has pushed up wages. Consumers have shouldered the brunt of these additional labour costs through higher prices,” Coatsworth said.
“This situation could be exacerbated if Labour wins the election and changes the zero hours contract system. It wants to ban ‘exploitative’ zero-hour contracts as part of a broader initiative to boost wages, make work more secure and support working individuals.”
Frasers is among the names on the stock market to have made full use of zero-hours and any change to the system means it has less flexibility for its workforce.
This scenario extends into other places such as the support services industry, with Mitie among the potential losers from a ban on zero-hours.
Finally, Rishi Sunak’s party looks ready to pass the baton onto Labour in its war on smoking and vaping – bad news for big companies in this sector such as British American Tobacco, Coatsworth concluded.