10 Shares Left Behind by the FTSE 100 Rally to 6,000
LONDON -- The FTSE 100 has experienced quite a spurt over the past couple of months. The U.K.'s leading index has rallied from about 5,600 in mid-November to beyond the round-numbered, psychologically pleasing level of 6,000.
Not all companies have participated in the rally. The blue-chip names in the table below are the 10 biggest laggards: All have posted a flat or negative return over the period.
Company | Recent Share Price (pence) | Price Change Since Nov. 16, 2012 | Forecast P/E | Forecast Dividend Yield |
|---|---|---|---|---|
J. Sainsbury | 332 | 0% | 11.4 | 5% |
Wm. Morrison Supermarkets | 256 | 0% | 9.4 | 4.6% |
Bunzl | 1,024 | (0.3%) | 14.4 | 2.7% |
Carnival | 2,400 | (1.1%) | 16.6 | 2.8% |
Hargreaves Lansdown | 729 | (3.1%) | 24.5 | 3.5% |
John Wood Group | 740 | (4%) | 14.1 | 1.5% |
Tullow Oil | 1,271 | (5.1%) | 22.6 | 0.8% |
Fresnillo | 1,775 | (5.4%) | 26.6 | 2% |
Randgold Resources | 5,875 | (7.5%) | 18.8 | 0.5% |
Aggreko | 1,749 | (16.5%) | 17.5 | 1.3% |
As a contrarian investor, I'm always interested in companies that are out of favor with the market. Unloved shares have the potential to be some of the best long-term investments.
What does the table above tell us? First, there's quite a mixed bag of companies, but there are a few trends: There are two supermarkets (Sainsbury's and Morrisons); two precious metals miners (Fresnillo and Randgold); and, finally, oil firm Tullow and oil industry support services group John Wood.
The other thing the table tells us is that most of these companies were highly rated before the Footsie rally -- and the majority still are. There's no shortage of above-market-average price-to-earnings ratios and below-market-average dividend yields!
So which of the rally laggards look most interesting for investors? I'm going to give you my choices.
Sainsbury's
Sainsbury's may have the highest P/E of the U.K.'s listed supermarkets, but the whole sector is out of fashion, and Sainsbury's rating of 11.4 is well below the Footsie average of 15.6.
For investors with an eye for income, Sainsbury's dividend yield of 5% looks attractive: It not only trumps the yields offered by Tesco and Morrisons, but is also comfortably ahead of the 3.3% market average.
Sainsbury's released a Christmas trading update on Wednesday, which was greeted a little coolly by the market because, I think, of a cautious outlook statement. Nevertheless, with 32 consecutive quarters of like-for-like sales growth, the momentum in Sainsbury's business must be the envy of its rivals.
Morrisons
Morrisons released a Christmas trading update this week that similarly underwhelmed the market. Total sales and like-for-like sales both declined over the period. Nevertheless, the company is expecting its full-year performance to be broadly in line with its expectations.
Morrisons' P/E of 9.4 is not only the lowest of the laggards in the table above, but is also significantly lower than its rivals and the market. The 4.6% dividend yield isn't bad, either, for a company committed to delivering annual double-digit dividend growth through to fiscal year 2014.
The U.K.'s fourth-largest supermarket may be behind Tesco and Sainsbury with its convenience store and online offerings, but arguably, it has more to go for in these areas, and growth will be faster from the low base if management successfully executes on the strategy.
Carnival
The chairman of cruise operator Carnival has described 2012 as the most challenging year in the company's history as a result of the Costa Concordia tragedy at the start of the year. Nevertheless, the shares recovered strongly through 2012 before falling back somewhat since the company released its annual results in December.
Carnival warned that while booking volumes for the first three quarters of 2013 are in line with last year, ticket prices have been lower. On the positive side, the company -- which paid shareholders a nice special dividend last year on top of the ordinary dividend -- anticipates significant free cash flow in 2013, which it intends to continue to return to shareholders.
Carnival's P/E of 16.6% remains a bit above the market average, but I reckon it deserves a premium rating because of the compelling demographic drivers that support the business and the company's strong position in the sector.
Randgold
Top Footsie gold miner Randgold Resources has suffered a few setbacks of late -- most recently, a fire at one of its mines in December. As a result, the shares haven't joined in on the Footsie rally, and it has been the second-worst performer during the period.
P/Es and dividends don't mean a great deal for precious-metals miners. What Randgold has going for it are the resources in its name -- which are substantial -- and a long-established management with a successful record of delivering the goods.
Randgold has proven to be a leveraged play on the price of gold since listing on the London Stock Exchange in 1997. The shares have recently been trading about 25% below their 52-week high, so if you're in the market for a geared bet on gold, Randgold could be well worth considering.
Aggreko
Aggreko has been the worst performer during the market rally by some margin. The temporary-power provider released a trading update in December that saw its shares plunge 20%, wiping about 2 billion pounds off its stock market value.
The company reported that while its 2012 results would be in line with expectations, including growth in earnings per share of at least 15%, it expects performance in 2013 to be slightly lower than in 2012. Of several factors cited, weakening economic growth in many of the emerging markets in which the group operates is perhaps the most significant.
Aggreko remains on an above-market-average P/E of 17.5. However, as the long-term structural drivers for the business remain intact, patient investors may feel that a P/E in the teens is not ungenerous for a company that has previously traded on a mid-20s rating.
New and special
To wrap up, I can tell you that ace City investor Neil Woodford holds two of the 10 companies that have been left behind by the Footsie's recent rally to 6,000. Woodford's funds have returned well more than 300% in the last 15 years, trouncing the market, so he's definitely an investor worth learning from.
If you're interested in learning about Woodford's enormously successful approach, help yourself to a newly updated free Motley Fool report: "8 Shares Held By Britain's Super Investor." This exclusive report is full of valuable investing insights, as well as an analysis of Woodford's current biggest blue-chip bets. As I say, it's 100% free, and you can download it right now -- simply click here.
The article 10 Shares Left Behind by the FTSE 100 Rally to 6,000 originally appeared on Fool.com.
G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Hargreaves Lansdown and Tesco. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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