There’s another three weeks left before the general election, offering the potential for more twists and turns. But based on recent polling, a result could be coming that sends FTSE 100 shares through the roof.
All of the major political polls put Labour firmly on course to secure a parliamentary majority in early July. According to Sky News, Keir Starmer’s party has a commanding 21-point lead over Rishi Sunak’s Conservatives.
If history repeats itself, this could lead to a 35% jump in the value of Footsie shares over the following 12 months.
History repeating?
That’s according to analysis from eToro, which has looked at stock market data following Labour’s last general election victory in 1997.
Back then, the FTSE 100 index rallied 17% in the year to election day, according to the broker. And it rallied more than a third in the following 12-month period.
Dan Moczulski, Managing Director at eToro UK, comments that
we’re seeing a clear parallel to 1997, a moderate Labour party unseating a long-standing and divided Conservative government. A change of government after years of Tory rule was a stimulant for the UK stock market in 1997 and it looks like it will be again this year.
Winners and losers
However, not all stocks are equal, and a Labour government could have contrasting consequences for different parts of the London stock market.
eToro thinks that energy stocks like Ithaca Energy and Harbour Energy could lose out following the creation of publicly-owned utility Great British Energy. Banks like Lloyds and NatWest might also be casualties after their failure to pass better benefits of higher interest rates through to savers.
But there will also be big beneficiaries of a Labour victory, the broker says. It notes that “the winners basket includes the likes of homebuilders such as Vistry Group, and companies vital to their supply chains, such as Travis Perkins, which will likely profit from Labour’s ambitious housing plan“.
IeToro also reckons firms involved in green infrastructure like Ricardo might thrive as investment in renewable infrastructure is stepped up.
A top penny stock
There are several top UK stocks I’d consider buying ahead of a potential Labour victory. One of them is brickmaker Michelmersh Brick Holdings (LSE:MBH).
Like the housebuilders, this building materials supplier could see revenues soar under a Starmer-led government. Labour has announced plans to build 1.5m new homes over the next five years, if elected.
This isn’t the only reason to be optimistic for Michelmersh though. Given the age of the UK’s housing stock — British homes are on average the oldest in Europe, according to Resolution Foundation — demand from the repair, maintenance and improvement (RMI) sector should also remain strong.
Michelmersh’s sales would be adversely impacted if interest rates fail to come down significantly. But on balance, I find the company’s investment case highly attractive, and especially at current prices.
Today, the penny stock trades on a price-to-earnings (P/E) ratio of just 9.4 times. I already own shares in brickmaker Ibstock. If I didn’t, I’d buy Michelmersch shares for my portfolio today.
This post was originally published on Motley Fool
