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Today’s (28 October) Autumn Budget has put several FTSE 100 stocks firmly in the spotlight. While investors have been concerned about higher taxes and government borrowing, some UK stocks are doing well. In fact, there are two that have caught my eye and are worth noting.
Better than expected news
Standard Chartered (LSE:STAN) shares are currently the best performing in the index, up 4% today. This adds to the impressive 33% gain in the past year.
Part of the optimism is that the Chancellor’s increase in the bank profits surcharge was less severe than previously feared. Rather than restoring the surcharge from 3% to 8%, it was only increased to 6%. This has triggered a relief rally across banking stocks, which has helped Standard Chartered. It’s a case of the Budget not being as bad as expected for banks, relative to what investors had expected.
It’s not just the Budget today that has helped performance. The bank reported third-quarter pre-tax profits of approximately $2.25bn, up 27% year on year, while upgrading its full-year income and profitability guidance.
I believe this combination of improving earnings and reduced tax uncertainty explains why investors are becoming more optimistic.
Still, Standard Chartered faces risks from weaker Asian economic growth, deteriorating credit quality and potential interest rate cuts. Some would argue that more domestic UK banks are a better way of getting exposure to a growing UK economy if the Budget helps to kickstart things.
Benefiting from commitments
Another company doing well from the Budget is Babcock International (LSE:BAB). The stock is up just over 2% today, having jumped 6.4% on Monday. But it’s down 18% in the last year.
The catalyst has been the Chancellor reaffirming his commitment to higher defence spending. He confirmed that at the spending review in 2027 he will set out details of how to meet 3.5% of GDP on defence by 2035 and 3% by 2030. More than this, the Chancellor will set up a defence finance taskforce to prioritise this area.
I think Babcock is particularly well positioned to benefit. The company provides essential maintenance, engineering and support services for the Royal Navy, including nuclear submarines and naval infrastructure.
Unlike manufacturers dependent on winning new equipment orders, Babcock generates substantial revenue from maintaining existing military assets. This provides relatively predictable income, while additional government funding could accelerate contract awards.
The main risk I see with this is that higher defence budgets don’t automatically translate into additional profits. Government contracts can be delayed, and there will clearly be other companies vying for the same contracts that Babcock is trying to win.
Yet when I look at both companies, I think the move today isn’t the end of the road. If I had free money, I’d consider adding them to my portfolio for further gains in the coming year.
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Jon Smith has no positions in the shares mentioned.
This story originally appeared on Motley Fool
