8 Ways to Invest in the U.K. Now

Wayne Duggan

Take advantage of European chaos.

A new report by consulting and accounting firm EY found that Britain is the top corporate investment destination in the world. For the first time in the 10-year history of the EY annual survey, the U.K. is the top destination for foreign corporate investment in mergers and acquisitions. The U.K. Brexit vote to leave the European Union has created political chaos in Britain, but it has also tanked the pound and made assets cheaper for outside investors. Here are eight ways for U.S. investors to get in on the action.

HSBC Holdings (ticker: HSBC)

HSBC is an international bank headquartered in London. HSBC has operations around the world, but it is particularly exposed to Asia and the U.K. Morningstar analyst Michael Wu says HSBC's push to increase its Asia exposure makes sense given growing wealth and trade in China, Hong Kong and Singapore. The bank has trimmed $296 billion in risk-weighted assets in recent years as part of a restructuring plan that involves exiting its worst-performing businesses. HSBC shares also pay a generous 5.8% dividend. Morningstar has an "undervalued" rating and $54 fair value estimate for HSBC stock.

BP (BP)

BP is one of the largest global oil majors with operations in more than 100 countries. BP finally closed the book on its 2010 Deepwater Horizon accident in 2016 when it reached a settlement with the U.S. government and Gulf states. Morningstar analyst Allen Good says BP management has been executing its strategy of increasing production while managing operating and capital costs. Good says BP should be able to hit its target for 5% annual production growth through 2021. Morningstar has an "undervalued" rating and $52 fair value estimate for BP stock.

Royal Dutch Shell (RDS.A)

Royal Dutch Shell is a British-Dutch global oil major headquartered in the U.K. Bank of America analyst Christopher Kuplent says Shell is one of the most defensive investments among oil stocks. Kuplent says Shell has taken strides in reducing its debt-equity ratio, and the company will be able to return 20% of its market cap to shareholders via dividends and buybacks in a two-year period. Shell shares pay an appealing 5.7% dividend yield. Bank of America has a "buy" rating and $69 price target for RDS.A stock.

GlaxoSmithKline (GSK)

GlaxoSmithKline was formed in 2000 via the merger of British drug companies Glaxo Wellcome and SmithKline Beecham. The company's asthma drug Advair is a top seller, but it also has a strong HIV and vaccine portfolio as well. CFRA analyst Wan Nurhayati says GlaxoSmithKline is helping offset declining Advair sales with new products like Nucala and Shingrix. Both drugs seem to be gaining early traction in the market. Like other stocks in this list, GlaxoSmithKline pays an impressive 5.2% dividend. CFRA has a "hold" rating and $43 price target for GSK stock.

Diageo (DEO)

Diageo is a British multinational alcoholic beverage company that sells products in more than 180 countries. Diageo owns both the top-selling global vodka brand (Smirnoff) and the top-selling global liqueur (Baileys), as well as other liquor brands. Macquarie analyst Caroline Levy says the popularity of vodka/soda drinks have been on the rise among younger American drinkers looking for lower-calorie alternatives to beer. Levy is forecasting 5% organic revenue growth and 7% EPS growth for Diageo over the next three years. Macquarie has an "outperform" rating and 140 British pounds ($181.88) price target for DEO stock.

AstraZeneca (AZN)

AstraZeneca is a major pharmaceutical company that focuses on treatment of gastrointestinal, cardiovascular, respiratory and neurological conditions, including cancer. Nurhayati says the $2 billion in sales from newer products in 2018 is encouraging for investors and will help the company combat near-term sales headwinds from rising competition and patent expirations. While a return to sales growth is a positive development, Nurhayati says AstraZeneca shares are fairly priced at current levels. Like GlaxoSmithKline, AstraZeneca also pays an appealing 3.6% dividend yield. CFRA has a "hold" rating and $42 price target for AZN stock.

British American Tobacco (BTI)

British American is a global tobacco giant that owns top brands Kent, Lucky Strike, Newport and Camel. Bank of America analyst Mirco Badocco says British American will expand its margins by 0.5% in 2019 thanks to cost cuts, but it faces an increasingly uphill battle in the longer term. Badocco says deteriorating fundamentals, rising competition and ongoing regulatory threats leave British American as one of the most risk-exposed stocks in the tobacco group. BTI stock has an appealing 6.7% dividend, but Bank of America has an "underperform" rating and $32 price target.

iShares MSCI United Kingdom Index (EWU)

For investors looking for the best way to take a diversified stake in the U.K. economy, the EWU may be the best option. In addition to the seven stocks already mentioned, the EWU exchange-traded fund holds shares of 106 other U.K. and European stocks. The EWU ETF is the best and most popular "pure-play" ETF for exposure to the British market. The fund has $2.4 billion in assets, an expense ratio of 0.47% and average daily trading volume of 2.3 million shares, suggesting liquidity is not a problem.

Best ways to invest in the U.K.

-- HSBC Holdings (HSBC)

-- BP (BP)

-- Royal Dutch Shell (RDS.A)

-- GlaxoSmithKline (GSK)

-- Diageo (DEO)

-- AstraZeneca (AZN)

-- British American Tobacco (BTI)

-- iShares MSCI United Kingdom Index (EWU)