The sunny side of Brexit: How wise investors can profit

With the first days of market panic over Brexit apparently fading fast, a more rational strategic re-thinking has returned. But the lesson is obvious: Human emotion exacerbates volatility in the investing world.

"Emotion frequently gets the best of investors during times of uncertainty," noted Scott Wren, senior global equity strategist at Wells Fargo Investment Institute. The result can be "hysteria" as investors behave or react "in an extreme uncontrolled way because of fear." In the stock market, he added, that "often translates into buying high and selling low."

What are the more experienced and intrepid investment pros doing? They're sticking with their pre-Brexit strategies anchored in fundamentals and avoiding changes in their forecasts and price objectives.

"The Brexit vote doesn't change our secular bullish stance," said Ed Yardeni, president and chief investment strategist at Yardeni Research, in a recent appraisal of the U.K.'s decision to exit the European Union.

The surprise Brexit vote resulted in stocks taking a severe two-day beating, with the S&P 500 stock index plunging 5.3 percent, led by the financial sector, which plummeted some 8 percent.

The reason for Yardeni's continued bullish position: "We expect that earnings growth will resume during the second half of this year and that interest rates will remain as low as they are now for the foreseeable future."

Yardeni sees the S&P 500's aggregate revenues growing 4 percent next year and revenues per share rising 5 percent to 6 percent. Share buybacks and company acquisitions could add half a percentage point to revenue growth on a per share basis, he said.

Profit margins should remain high, according to Yardeni. The typical S&P 500 company's profit margin edged up during the first quarter, to 8.7 percent from 8.0 percent in the previous quarter, which was the lowest since the fourth quarter of 2009. Excluding energy companies, the average S&P 500 margin was 9.7 percent in the first quarter. By way of comparison, profit margin hovered around 10 percent since the first quarter of 2013.

"Our bottom line on the profit margin is that it should remain around the current cyclical high [around 10%] for the foreseeable future," Yardeni said.

Should investors worry that the current market upturn after the Brexit slump may not last? Serious market watchers tend to trust the rally after the slump.

"Investors shouldn't be too surprised by the S&P 500's subsequent 'pop after the drop,' " advised Sam Stovall, chief equity strategist at S&P Global Market Intelligence. He cited past experience: In the nine times since 2009 in which the S&P 500 fell by 5 percent or more in two successive trading days, the market rebounded by an average of 4.7 percent in the following five trading days -- and registered price increases 100% of the time.

Stovall added that since 1950, the S&P 500 gained an average 1.9 percent in price during the five trading days that followed a 5 percent decline over two successive days -- and the index advanced 62 percent of the time.

Nonetheless, plenty of investors worry that as investment conditions outside the U.S. get more complicated and volatile, or simply just unpredictable, it may be reasonable to adopt a "stay home" investment stance. That might prove advantageous in the case of some technology companies that generate 10 percent or more of their revenues in the U.K., according to some market watchers.

"Given the uncertainties in and around the U.K., perhaps it makes sense to consider companies with more of a domestic emphasis," said Scott Kessler, head of technology research at S&P Global Market Intelligence. He believes that companies with a more limited international focus tend to avoid the complexities and challenges associated with other nations' and localities' laws and regulations.

Kessler has "strong buy" recommendations on several such companies with largely U.S.-generated revenues, such as Alliance Data Systems (ADS), and "buy" ratings on Akamai Technologies (AKAM), CA (CA), CSRA (CSRA) and FiServ (FISV).

S&P has an "overweight" recommendation on the consumer discretionary and health care sectors, and a "market weight" investment rating on areas like consumer staples, financial services, industrial goods, information technology, materials and telecom.

Michael Wilson, chief investment officer at Morgan Stanley Wealth Management, acknowledged that political events might lead to more uncertainty, but said "we do not think they will derail the nascent economic recovery or block the rally in the equity markets that began in February. "

"We continue," he added, "to move forward with our generally more optimistic view of the world."