The Zacks Analyst Blog Highlights: Lloyds Banking Group, Royal Bank of Scotland Group, BHP Billiton, HSBC Holdings and GlaxoSmithKline

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Sep 10, 2014, 09:30 ET

CHICAGO, Sept. 10, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Lloyds Banking Group plc (NYSE:LYG-Free Report), Royal Bank of Scotland Group plc (NYSE:RBS-Free Report), BHP Billiton plc (NYSE:BBL-Free Report), HSBC Holdings plc (NYSE:HSBC-Free Report) and GlaxoSmithKline plc (NYSE:GSK-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

Scottish Independence? Dump These 3 Stocks

The first poll to show that the campaign for an independent Scotland might be successful has raised investor concerns. It also led to a rapid decline in the British pound on Monday as well as a plunge in stocks with Scottish exposure. This has led market watchers to believe that the referendum will have a significant impact on stocks as well as the United Kingdom's financial health.

Impact of Opinion Polls

Markets have so far remained unaffected by the run-up to the crucial referendum. A feeling had emerged that chances of the referendum turning out to be in favor of Scottish Independence were rather low. However, investors are now eager to assess the impact of such a turn of events.

This is because the YouGov poll had given a slim lead to those in favor of independence. According to the YouGov poll, those in favor had an advantage of 2%, the first lead of this kind. However, another poll by Panelbase had said that those against were 4% greater. Such a divergence of views and the low margins at play have created significant uncertainty about the ultimate outcome. The results from a third poll, by TNS, are still awaited.

Scottish Stocks Suffer

As the economic impact of the possibility of Scottish freedom began to seep in, stocks with Scottish linkages felt the heat. The worst hit was Lloyds Banking Group plc (NYSE:LYG-Free Report), the holding company of the Bank of Scotland. Shares declined by 3.3% or £1.7bn by noon.

Similarly, Edinburgh-based The Royal Bank of Scotland Group plc (NYSE:RBS-Free Report) lost 2.8% or £1.1bn. It comes as no surprise that Scottish industry is not in favor of the division and has been emphasizing the resultant economic risks. Around 130 executives from companies like BHP Billiton plc (NYSE:BBL-Free Report) and HSBC Holdings plc (NYSE:HSBC-Free Report) issued a public letter in the newspaper Scotsman, urging the need for the United Kingdom to remain unified.

Economic Implications of Independence

While the details of a possible division are yet to be worked out, important figures have outlined its economic risks. In a recent article, Nobel Prize winning economist Paul Krugman said: "The Scottish independence movement has been very clear that it intends to keep the pound as the national currency. And the combination of political independence with a shared currency is a recipe for disaster."

Krugman emphasizes that a common currency is desirable only if Scotland has some amount of control over monetary policy. He says that the Eurozone crisis is a good example of how monetary integration can go horribly wrong without a common government.

At the same time, he says the Eurozone members still have some control over ECB's operations. This is unlikely to happen in the Scottish case where the country continues to use the pound.

British Fallout

The initial impact of referendum fears has already been felt by the stocks. The referendum could also weigh on bonds issues from the U.K. In case the referendum is not carried by a small margin, a second vote could be in the offing in the near future.

This would create uncertainty among foreign investors, who would be assessing the impact of a division over a longer period. Additionally, if a monetary union does not come into being, the Scottish first minister has gone on record to say that Scotland would not be willing to share the national debt.

This would cause investors to factor in a higher debt-to-GDP ratio. A natural result would be volatility in bonds and the pound, resulting in a squeeze on foreign investment inflows.

Our Choices

Here we will list 3 UK stocks that may witness further downside due to these factors. These stocks have witnessed downward estimate revisions recently. Moreover, share prices for each of these stocks have also declined considerably. These stocks carry either Zacks Rank #4 (Buy) or Zacks Rank #5 (Strong Buy).

Lloyds Banking Group plc is a financial services group providing a range of banking and financial services, primarily in the United Kingdom, to personal and corporate customers. The company operates through four segments, namely retail, commercial banking, wealth, asset finance and international and insurance. The stock holds a Zacks Rank #4 (Sell).

Estimate Revision – Lloyds Banking has seen 1 negative revision in the last 60 days for the current year estimates. Yearly earnings consensus has dropped from 55 cents a share to 54 cents.

Share Price – The stock has lost 4.67% over the last four weeks.

BHP Billiton plc is one of the world's major resource groups. The company conducts its operations through customer sector groups. BHP operates across nine segments. These are: Petroleum, Base Metals, Aluminum, Stainless Steel Materials, Diamonds and Specialty Products, Manganese, Iron Ore, Metallurgical Coal and Energy Coal. The stock holds a Zacks Rank #4 (Sell).

Estimate Revision – BHP has seen 3 negative revisions in the last 30 days for current year estimates. Yearly earnings consensus has dropped from $5.26 a share to $5.06.

Share Price – The stock has lost 10% over the last four weeks.

GlaxoSmithKline plc (NYSE:GSK-Free Report) offers pharmaceutical products and other health-related consumer products. These products are offered worldwide through two major divisions: Pharmaceuticals and Vaccines and Consumer Healthcare. The Consumer Healthcare segment delivers over-the-counter (OTC) medicines, oral care products and nutritional health care products. The stock holds a Zacks Rank #5 (Strong Sell) and earnings for the current year are projected to fall 7.8%.

Estimate Revision – GlaxoSmithKline has seen 1 negative revision in the last 60 days for the current quarter and 5 negative revisions for current year estimates. Quarterly earnings consensus has declined from 85 cents a share to 79 cents a share. Yearly earnings consensus has dropped from $3.52 cents a share to $3.19.

Share Price – The stock has gained marginally, by 0.4%, over the last four weeks. However it has lost 3.1% over the last five days and 13.2% over the last three months.

Even though the Scottish independence movement has gained strength in recent times, the outcome of the referendum remains unclear. However, the resultant uncertainty has led to a cloud over British stocks and those with Scottish linkages in particular. This is why it may be a good idea to drop these stocks from your portfolio.

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