Two winning stocks from Britain’s bargain basement market

UK stocks may linger in the bargain basement, but this gives long-term investors an opportunity to stock up.

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"While homegrown shares languish in the doldrums, hit by fears about Brexit and rising taxes, shrewd investors see an opportunity brewing," writes Ian Cowie in The Sunday Times. UK stocks may linger in the bargain basement, but this gives long-term investors an opportunity to stock up.

British shares are at their cheapest valuation compared to international rivals for nearly 30 years, according to Morgan Stanley.

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Furthermore, the average allocation of an investment trust to UK equities has halved during the past decade, from 20% in 2008 to less than 10% this year, according to Morningstar. So there is ample scope for stocks to recover as investors rush back in to the British market.

The reason to expect the exodus to reverse, as Nick Andrews points out in a Gavekal Research note, is that sentiment could flip very quickly "should the market come to recognise that no deal' really won't happen." The negativity has been overdone, with gloomy headlines obscuring the likelihood that the UK is heading for a Brexit deal, or "a lengthy interim arrangement that kicks the can down the road". Once that becomes clear, "expect UK domestically-focused equities to quickly resume a period of outperformance".

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Among Cowie's favourites is Greene King (LSE: GNK), Britain's biggest brewer. Whatever shocks may lie ahead, this company, founded in 1799, "will still be selling beer long after I have gone." He also likes a small electrical company that makes kettle safety controls Strix, (LSE: KETL).It supplies half the world's kettles with the mechanism that cuts off the power supply when the water has boiled.A kettle is one of the first things emerging-market consumers buy with their new-found wealth.

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