3 Profitable British Stocks Riding High on a Soaring Pound

James Dennin, Kapitall: Hedge funds are bullish on the pound, so we found 3 profitable British stocks based on accounts receivable. 

It's been a pretty good year for Great Britain, as signs of recovery have percolated throughout the country and manufacturing has begun to rebound. Unemployment is down, and many experts have already doubled their outlook for UK GDP growth in 2014 compared to where it was over the summer. 

Source: Hedgeye

As our partners at Hedgeye explain, a lot of this is the result of strong currency and strong economic consumption trends that are developing in the UK. Bulls on Britain attribute this partly to the appointment of Mark Carney last June to head the Bank of England.

Read more on Europe from Kapitall: 7 Undervalued European Stocks to Diversify Your Portfolio

As growth is slowly restored, sentiment throughout the British economy is improving noticeably. In a very telling statistic, four in five of the companies on the FTSE 350, an index of the biggest publicly traded companies in the UK, believe that growth will be strong in the coming months. More than half of those companies plan to increase capital expenditures over the same period as well. 

There are many things underlying the bullishness about the UK, including Prime Minister David Cameron's aggressively procured lucrative trade partnerships with China.

Investing ideas

We ran a screen on British-based stocks that trade on US exchanges, looking for ways to capitalize off of this growing positive sentiment. To do that we looked for encouraging trends in accounts receivable. 

Accounts receivable is basically money that is yours, but you don't have yet – outstanding payments, outstanding loans, "checks in the mail," etc. Since there is no guarantee that you'll receive this money, it's a good thing if this number decreases as a percentage of net assets, because it shows that the company is building value and managing its finances effectively.

This also means that a company has more cash on hand to reinvest, pay down debt, or hire more workers – all important things to be able to do in a growing market. 

We were left with three companies on our list.  

Click on the interactive charts to view analyst ratings over time.

Do you see investing opportunities in the British economy? Use the list below to begin your analysis. 

1. ARM Holdings plc ( ARMH): Designs microprocessors, physical IP, and related technology and software, as well as sells development tools to enhance the performance of high-volume embedded applications. Market cap at $23.01B, most recent closing price at $49.43.

Revenue grew by 27.25% during the most recent quarter ($184M vs. $144.6M y/y).

Accounts receivable grew by -44.23% during the same time period ($113.1M vs. $202.8M y/y).

Receivables, as a percentage of current assets, decreased from 29.35% to 14.31% during the most recent quarter (comparing 3 months ending 2013-09-30 to 3 months ending 2012-09-30). 

 

2. BP plc ( BP): Provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. Market cap at $146.18B, most recent closing price at $46.58.

Revenue grew by 4.% during the most recent quarter ($98,203M vs. $94,425M y/y).

Accounts receivable grew by -0.76% during the same time period ($41,363M vs. $41,681M y/y).

Receivables, as a percentage of current assets, decreased from 41.77% to 39.14% during the most recent quarter (comparing 3 months ending 2013-09-30 to 3 months ending 2012-09-30). 
 

3. Ensco plc ( ESV): Provides offshore contract drilling services to the oil and gas industry. Market cap at $14.12B, most recent closing price at $61.09.

Revenue grew by 12.7% during the most recent quarter ($1,266.2M vs. $1,123.5M y/y).

Accounts receivable grew by -9.11% during the same time period ($775.5M vs. $853.2M y/y).

Receivables, as a percentage of current assets, decreased from 60.48% to 51.12% during the most recent quarter (comparing 3 months ending 2013-09-30 to 3 months ending 2012-09-30). 

 

 

( List compiled by James Dennin, a Kapitall Writer. Analyst ratings sourced from Zacks Invesment Research, Accounts Receivables sourced from Google Finance. All other data sourced from Finviz.)

© 2013 Hedgeye Risk Management LLC. The information contained in the video herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.

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