12 Shares With Fast-Improving Fortunes

LONDON -- You know the moment in the murder mystery when the penny drops and you realize whodunnit? Something similar happens with shares when the brokers analyzing them realize their profit forecasts are too low.

This denouement often leads to a batch of upgrades and a rising share price. Should companies deliver against these increased expectations, then further rises can occur.

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I've trawled the market to find 12 shares that the market is suddenly expecting more from. Each of these companies, in the past month, has seen expectations of their future profits be increased by at least five different analysts.

These four look particularly interesting.

1. Persimmon
Persimmon is one of the U.K.'s biggest builders of new homes. In 2011, the company built 9,360 new abodes. In a recent trading statement, the company announced 4,712 were completed in the first half of the year.

It is this trading statement that sparked an increase in profit expectations at the company. Persimmon announced it had completed transactions for 6% more homes than it managed in the first half of 2011. A shift in demand toward family homes saw the average price of houses sold increase 7% on the prior year. The company also reported a much stronger spring than 2011.

All this good news was almost too much for the broker community, who rushed to upgrade their estimates for 2012. Since the trading statement, shares in the company are up by more than 10%.

Today, Persimmon trades at 14.0 times consensus forecast for 2012. This represents a 42.7% increase in earnings for the full year. Not bad for a sector that most commentators consider to be struggling.

2. Prudential
Insurer Prudential's exposure to Asian and North American markets distinguishes it from its peers. Combined, these two geographies deliver almost 60% of Prudential's profits.

While companies like Aviva are languishing, the Prudential share price is close to a 10-year high.

At a time when eurozone worries are at the forefront of investors' minds, Prudential shares offer exposure to broader markets. U.S. economic recovery and Asian growth continue. It is likely that Prudential's significant operations in these growing economies has led the analyst community to upgrade.

Dividends at Prudential have increased, on average, by 8% a year for the last five years. Another two years of similar increases are forecast. Earnings per share are expected to increase 16.8% for 2012, followed by another 13.8% in 2013. I'm a little surprised to see Prudential's shares are not higher. At today's share price, the company trades on just 11.1 times the consensus 2012 forecast, falling to 9.8 times for 2013.

3. Sage
Accounting software specialist Sage recently updated the market with an interim management statement. The company confirmed trading was in line with expectations. The U.S. operations are delivering good growth while the continental European market has become more difficult.

Against that trading statement, it is difficult to understand what has prompted the upgrades on Sage. I imagine analysts have been cheered by the U.S. recovery and are now beginning to factor in some expectation of Europe following suit in the medium term.

The result of the last five years of earnings growth and economic troubles is that Sage has lost its high price-to-earnings (P/E) rating. Previously, the shares often traded on a P/E of around 20 times earnings. In the last five years, Sage has delivered average dividend growth of 22.1% a year and average EPS growth of 10.5%. Today, however, Sage trades on 14.3 times the reported numbers for 2011 and just 13.8 times consensus forecasts for 2012.

That doesn't seem expensive for such a successful, blue-chip stock.

4. WPP
WPP is one of those big companies few people have ever heard of. The company provides advertising and marketing services worldwide.

WPP is one of the bluest of blue-chip companies. With a market capitalization of 9.9 billion pounds, the company is a leader in many of its markets and is a member of the FTSE 100 index.

In the last five years, WPP has increased its dividend to shareholders, on average, by 17% a year. In that time, earnings per share have increased, on average, 11.4% a year. Revenues have increased, year-on-year for the last five years at an average rate of 11.1% per annum.

Despite considerable growth being forecast at WPP (14.2% increase in EPS this year, followed by another 11. 0% increase the year after), the company trades on a P/E of just 10.7 times the consensus 2012 estimates, falling to 9.6 times the figure for 2013.

The recent upgrades have perhaps been spurred by trading statements from broadcasters such as ITV. It appears the recession in advertising may finally be ending. A company like WPP would benefit significantly from any industry recovery. The shares look inexpensive on their current rating.

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