Weak Pound Doesn't Guarantee UK Stock Opportunities

Investors looking to buy UK stocks in October may be tempted by the pound's slide against the dollar, but that might not be the opportunity it seems.

A weaker pound does mean better returns for shareholders in companies with significant US exposure. However, when it comes to buying, it's a different story.

The contract catering firm Compass Group (LSE:CPG) is one example of this. It declares dividends in US cents, but UK shareholders receive pounds. The recent decline in the pound has increased the value of these dividends for UK investors, making them worth more in sterling.

However, the effect of currency moves on investment returns is real, but share prices adjust to reflect this. In some cases, it's automatic, and shares are still quoted in pence. A weaker pound makes the underlying dollar earnings worth more in sterling, which puts upward pressure on the share price.

According to the author, there's good reason to doubt the buying opportunity. What matters most is long-term competitive strength, and Compass Group fares pretty well by these standards. The firm's scale gives it a cost advantage that it can pass on to customers, making it a stronger position when competing for new business.

The stock has been down around 10% since the start of the year, while the wider FTSE 100 has advanced 7.5%. Despite this, the author believes the faltering share price is a reason to buy, not the weak pound.