LONDON -- Upgrades (and downgrades) from City analysts can move share prices significantly. All shares can be affected, from small caps through to FTSE 100 blue chips. Institutional fund managers often follow the analysts' advice, buying and selling shares accordingly.
The consensus analyst recommendation is therefore a good proxy for market sentiment as a whole. Understanding how bullish or bearish the market is feeling toward a share can help investors appraise the price the share might reach if sentiment turns.
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I trawled the market to find shares whose consensus analyst recommendation was on the wrong side of "hold." In the table below, a consensus recommendation score of five would be a unanimous "strong sell," while a score of one would be all "strong buys."
Broker Consensus Recommendation
Market Cap (millions of pounds)
Schroders (ISE: SDR.L)
Admiral (ISE: ADM.L)
Capital Shopping Centres
Drax (ISE: DRX.L)
PZ Cussons (ISE: PZC.L)
Michael Page International
Four of these shares look particularly interesting to me.
1. PZ Cussons
Detergent and personal-hygiene company PZ Cussons is a surprise name on the list. While the company has warned on profits recently, it remains one of the most successful companies on the market today.
PZ Cussons owns a number of high-profile home brands, including Imperial Leather, Carex, and Morning Fresh. The company's history can be traced back to the late 19th century, and West Africa remains a key market for the company today. PZ Cussons first opened an office in Nigeria in 1899.
What is causing analysts to suggest the shares should be sold? Recent trading statements from the company have confirmed the damage being done by rising costs and strife in Nigeria.
However, PZ Cussons has a formidable dividend record. The company's payout to shareholders has increased year on year for more than 25 years. Unfortunately for income investors, PZ Cussons' dividend today equates to a prospective yield of just 2.1%.
At today's price, PZ Cussons trades on a forward P/E of 25. That's a big rating for a company where analysts expect profits to decline by 15% this year.
Drax owns and operates the Yorkshire power station of the same name. The company generates 7% of Britain's electricity.
On the face of it, this share should be able to deliver reliable earnings and dividends. However, in the last five years, the company's fortunes have varied considerably. While net profit for the last year hit 465 million pounds, that figure is expected to drop substantially over the next two years. In 2009, net profit fell to just 11 million pounds.
When investors and analysts cannot forecast future earnings to a satisfactory level of certainty, they will often mark the shares down. Drax currently has plans to become a renewable-energy provider by burning biomass. The profit the company will make from such activities depends on the level of subsidies the government is willing to provide -- and currently this is undecided. As a result, many analysts are sitting on the fence, unwilling to recommend a trade on a company with somewhat unreliable earnings.
Fund manager Schroders is a blue-chip investment group with a strong position in its chosen markets. The company today trades on a P/E rating of 13.2 times consensus estimates for 2012. The shares are expected to yield 2.9%.
Schroders is typically cyclical business. When stock markets are performing well, Schroders shares do likewise. In tougher times, shareholders can be left nursing losses. For 2009, Schroders reported profits at half the level they were before the financial crisis. Earnings recovered sharply in 2010, more than doubling to 107 pence per share.
Schroder's dividend, while not huge, has been dependable. The company has not cut its annual dividend since 1999. In 2006, Schroders paid 25 pence per share in dividends. The most recent dividend came in at 39 pence per share -- equivalent to a 9.3% rise year on year.
Analysts expect Schroders' earnings to decline 8% this year to 104 pence per share. Growth is forecast to return in 2013, with earnings hitting 116 pence per share. Those estimates put the company on a forward P/E of 13.2 for 2012, falling to 11.8 for 2013.
4. Admiral Group
Admiral Group is a massive success story. From its formation in 1993, Admiral now employs more than 4,500 people and boasts a market capitalization of 3.1 billion pounds.
Admiral is the company behind the eponymous car insurance brand. The company also owns elephant.co.uk and insurance price comparison website confused.com.
Earlier in the year, Admiral shares dropped significantly when the company announced an increase in sales but flat revenue-per-vehicle statistics. The numbers spooked investors into thinking Admiral's growth had ended. There has also been a series of statements from hedge funds increasing their bets that the share price will fall.
Admiral is expected to deliver a large dividend rise for 2012. Based on analyst forecasts, this puts the shares on a prospective yield of 7.2%. On consensus forecasts, Admiral trades on a P/E of 12.7 for 2012. That's not expensive for a successful blue chip.
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The article 10 Shares the Market Hates -- but You Might Love originally appeared on Fool.com.
David does now own shares in any of the above companies. The Motley Fool owns shares of PZ Cussons. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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