10 Shares the Market Loves
LONDON -- Investment analysts are paid to find shares for fund managers. I trawled the market to find 10 large companies that are being recommended as buys more than any others.
The fact that these shares are already so popular may mean that there is not much possibility of further rises. However, professional analysts have superior access to data, trade information, and company management. These shares may be popular for good reason.
In the table below, a consensus recommendation of five would mean unanimous "strong sells," while a score of one would be all "strong buys."
Company | Consensus Broker Recommendation | Price (pence) | P/E | Yield | Performance vs. Market (TTM) | Market Cap (millions of pounds) |
|---|---|---|---|---|---|---|
Rio Tinto (ISE: RIO.L) | 1.7 | 3,030 | 6.9 | 3.4% | (25.5%) | 55,885 |
BG (ISE: BG.L) | 1.7 | 1,320 | 15.2 | 1.2% | (8%) | 44,794 |
Shire (ISE: SHP.L) | 1.9 | 1,980 | 17.3 | 0.5% | (7.5%) | 11,142 |
Experian | 2 | 995 | 23.8 | 2.1% | 27.3% | 9,996 |
Kingfisher | 2 | 296 | 10.7 | 3% | 12% | 7,005 |
Rexam (ISE: REX.L) | 1.9 | 442 | 14.0 | 3.3% | 12.6% | 3,877 |
Weir | 2 | 1,780 | 12.9 | 1.9% | (18%) | 3,777 |
Polymetal International | 2 | 924 | 19.5 | 1.4% | 0% | 3,537 |
Babcock International | 1.9 | 900 | 19.8 | 2.5% | 32.7% | 3,232 |
Dragon Oil | 1.7 | 607 | 7.6 | 2.7% | 11.9% | 3,045 |
Four companies in particular stood out.
1. Shire
Pharmaceutical company Shire is one of the few companies in the FTSE 100 that is less than 50 years old. Its two best-selling drugs are Adderall XR and Vyvanse. Both are used in the treatment of attention deficit hyperactivity disorder, and the two drugs account for around one-third of Shire's sales.
In July, the price of shares in Shire fell 11% in one day. This decline came in response to the news that a rival company had secured approval for a generic rival to Adderall XR. The shares have since recovered significantly and are ahead of where they were when the bad news was announced. While Adderall XR is a big seller for Shire, sales growth of the drug has declined, and Vyvanse is now growing rapidly. In its last results, Shire reported a 27% increase in sales of Vyvanse against a 5% decline in sales of Adderall XR.
Shire has grown earnings per share at an average compound rate of 30% in the last six years. Shire looks like an outstanding company trading at an average price.
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2. BG
BG is an energy company specializing in gas. Egypt, the U.K., and Kazakhstan account for the majority of BG's production.
In 2011, BG produced a total of 234 million barrels of oil equivalent. Since 2006, the company has more than doubled the book value of its assets. This has been achieved through a significant increase in reserves. BG has done a far better job of increasing its assets than many of its peers. Further, its exploration success has delivered a near doubling of the shareholder dividend over the last five years.
It is perhaps this level of success that has engendered such enthusiasm from the broker community. Both EPS and the shareholder dividend are expected to advance slightly for 2012. For 2013, the analysts are more bullish, forecasting double-digit increases against the 2012 estimates. BG currently trades on a slightly higher P/E and lower dividend yield than the average FTSE 100 stock. It appears that a lot of love is already in BG's share price.
3. Rio Tinto
Rio Tinto often appears in lists of the cheapest shares in the FTSE 100. I'm surprised, therefore, to discover the share is so frequently recommended as a buy.
Rio Tinto leads the global aluminum industry and is one of the biggest players in copper. Despite increased incidence of metal theft in the U.K., you may be surprised to learn that aluminum prices are down about 25% in the last five years. Copper is priced near the level it was back in 2007 following big declines suffered during the financial crisis.
Many investors regard Rio Tinto as a geared play on the fortunes of the Chinese economy. With Rio Tinto's shares trading on such a lowly forward P/E, it appears that much worry is already in the price. At these prices, Rio Tinto shares look a great way to bet against the economic doomsters.
4. Rexam
Rexam is a packaging business specializing in cans for the soft-drink industry.
Rexam's record in recent years has been variable. That's surprising for such a popular share. The company reported a large decline in EPS and dividend in 2009. Though the dividend has since been increased again, it is still below the level of 2000. Nor is great growth expected at Rexam. Analysts are forecasting just a 2.9% rise in EPS for 2012, to be followed by a more ambitious 12.6% advance in 2013. Rexam is thus priced at a discount to many of its blue chip peers. Despite the financial crisis, Rexam continued to trade profitably.
It is perhaps this resilience and the slight discount that have led so many analysts to recommend the shares. Rexam manages to deliver a respectable profit margin of around 10% on its operations. If you are looking for a global manufacturer to invest in, Rexam might be the share for you.
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The article 10 Shares the Market Loves originally appeared on Fool.com.
David owns shares in Dragon Oil. 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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