Stocks to buy as Liz Truss becomes Prime Minister

London’s stock market has struggled this year as fears of a recession, political uncertainty and a cost-of-living crisis have battered investors' confidence.

But the arrival of Liz Truss as Prime Minister could serve as a helpful boost for several industries. Telegraph Money breaks down the sectors that could stand to gain from Ms Truss and her new agenda. 

Defence 

Ms Truss has pledged to increase spending on the military to 3pc of GDP by the end of this decade and "review" the plan to cut the size of the army to 72,500.

Britain’s defence giant BAE Systems could benefit from higher defence spending. Rob Burgeman, of the wealth manager Brewin Dolphin, said: “This is the leading defence company in the UK, which gets all the big projects. It has worked closely with the Government for decades so it is trusted in a politically sensitive sector.”

BAE shares have soared 42pc in the year to date, as the war in Ukraine bolstered investors’ expectations for public spending on defence. Mr Burgeman said shares in Chemring, a relatively smaller defence company, could have further to climb. Both BAE and Chemring traded at similar price to earning multiples of 18, a ratio which measures how expensive a company’s share price is relative to its profits. 

Renewable energy

Ms Truss has said that she will scrap the planned rise in corporation tax. Analysts at broker Stifel said this would help renewable funds, given the rising cost of energy, and that the lower rate of corporation tax could add 4.1 percentage points to the net asset value of Greencoat UK Wind. The trust, which owns a portfolio of wind farms across the country, has returned 14pc this year and traded at a premium of 8pc to the value of its assets.

Analysts at Stifel believe that Ms Truss' low-tax agenda works for the wider industry too, with the risk of a punitive windfall tax on energy companies declining. Renewable funds sold off in May when the Government said it was assessing whether to apply a special tax to electricity generating companies making “excess” profits thanks to higher power prices. 

Early reports also suggest that Ms Truss wants to decouple electricity prices from gas. Wind and solar producers could be offered a “fixed” price for electricity over a 15-year period. Iain Scouller, of Stifel, said that it is likely this 15-year window would include some link to inflation – providing more certainty on revenues, and fattening up dividend cover. The Greencoat UK Wind trust paid a dividend yield of 4.7pc.

Banks and insurers 

Scrapping the planned corporation tax rise could be beneficial to big banks, according to the Labour party, who told the Financial Times they would effectively see a five percentage point cut in their tax bills.

This is because in 2015 the Government introduced an eight percentage point surcharge on bank profits, in addition to the current 19pc corporation tax rate. However, in the October 2021 Budget ex-Chancellor Rishi Sunak said that he would cut this surcharge from to 3pc next April, which would be offset by the planned rise in the corporation tax rate. 

Scrapping the corporation tax rise and keeping the five percentage point cut in the bank surcharge would be a boost to big banks, experts said.

There have also been reports that Ms Truss has been in talks with the insurers Aviva and L&G to empower the City through tax cuts and deregulation.

Mr Burgeman said this would be positive for Britain’s financial services sector. “The scale of regulation in the industry has made it very difficult for some businesses to grow,” he said. “Any loosening would help the likes of L&G and Aviva. Plus, both shares are trading cheap and pay a high dividend yield.”

Legal & General traded at a price to earnings ratio of seven, and offered a dividend yield of 9.6pc. Aviva traded at a ratio of nine, with a yield of 7pc. 

Social care 

Investors in private care and social housing could also profit from new policies offered by Ms Truss. Last month, the new Prime Minister vowed to divert billions of pounds from the NHS into social care to free up space in hospitals.

Ms Truss said she wanted to see the £13bn a year earmarked for the NHS from the recent National Insurance rise diverted to local authorities to pay for older people's care. 

Mr Burgeman said there were a number of private providers that could help local authorities find solutions to care. He highlighted the Triple Point Social Housing Reit, a real estate investment trust which owns a portfolio of specialised supported housing for vulnerable people. 

Shares in the trust have fallen 16pc since January, but have returned 33pc over the past five years. It traded at a 27pc discount to the value of its net assets and paid a dividend yield of 6.7pc.