As stock market investors, we have the option of buying shares listed on US exchanges like the New York Stock Exchange and NASDAQ. But we also have the option of buying UK shares listed on the London Stock Exchange that derive their earnings from the US.
Booming US economy
The US economy is expected to grow by 10% in the first quarter of 2021 as per a CNBC report based on the US Federal Reserve’s forecasts. And we have not even touched upon President Biden’s planned fiscal stimulus yet.
UK shares to note
Here are three UK shares that could benefit from this trend:
#1. Pershing Square Holdings: The fund became part of the FTSE 100 index in December as its share price showed robust performance over 2020. It focuses on companies domiciled in North America, many of which are in the restaurants and hospitality business as well as in real estate.
As the economy bounces back further, these segments will perform better. The downside is that Lowe’s Companies, a home improvement firm, which contributed substantially to Pershing Square’s portfolio gains last year (until August, the latest available data) could soften, as investors favour beaten-down stocks.
#2. CRH: The FTSE 100 construction biggie gets much of its revenues from the US. Its performance for 2020 is notable, too. Despite some fall in revenues, this UK share’s earnings remained strong.
The building-materials supplier expects recovery in demand, which should be boosted by the growth in housing markets evident in both the US and the UK. It has even started paying dividends again.
It also plans to expand through acquisitions. While it is good for the company, acquisitions are sometimes bad news for the acquirer’s share price, which is a risk to consider.
#3. Ashtead: The FTSE 100 rental equipment supplier also has substantial US focus through its subsidiary Sunbelt US. Its trading update for the nine months ending 31 January 2021 released earlier this week showed softening in its financials because of the pandemic. But it does expect full-year results to now exceed previous expectations.
Ashtead has been one of the high performers during 2020, and I think this can continue. A risk here is that this UK share may have become somewhat expensive — with a price-to-earnings (P/E) ratio of around 30 times.
A bonus stock
Besides these here is a bonus stock that I have been bullish on for some time — Cineworld. Over 70% its revenues are derived in the US. And if there is any business that is sure to pick up in 2021, it is cinemas, as people come back into theatres as the pandemic recedes.
The catch here is that the Cineworld share price has already rallied quite a bit. From the time the stock market rally started last year to now, it is up by four times. And it is not even out of the woods yet. I am closely examining if and how far its share price can rise further.
