10 Expected Winners of a Bull Market

LONDON -- If you think a market revival could be on its way, then you should check out "high-beta" shares.

A share's "beta" is a statistical measure of its price movements compared with those of the market. In short, a high-beta share has historically exaggerated the market's movements. Often, high-beta shares continue to demonstrate this, soaring when the market rises and collapsing when the market corrects.

I've trawled the FTSE 100 to find the 10 shares with the highest beta. Here they are:

Company

Price (pence)

Beta

Yield (forecast)

P/E (forecast)

Market Cap (millions of pounds)

Kazakhmys

671

2.67

2.6%

11.7

27,997

Vedanta Resources

1,085

2.61

2.4%

14.3

12,274

Royal Bank of Scotland (LSE: RBS.L  )

279

2.44

3.2%

9.2

2,958

Barclays (LSE: BARC.L  )

236

2.38

0%

17

31,619

GKN

204

2.19

2.4%

11.2

3,861

Lloyds Banking (LSE: LLOY.L  )

47

2.08

1.7%

7.7

3,516

Eurasian Natural Resources

276

2.07

2.5%

7.8

3,556

Xstrata

948

1.98

2.7%

6.9

28,921

ITV (LSE: ITV.L  )

96

1.91

0%

19.1

32,854

Antofagasta (LSE: ANTO.L  )

1,245

1.87

3.5%

8.4

3,330

The following five companies stood out in particular.

1. Barclays
Of the three banks listed above, Barclays has the best earnings forecasts. The bank is expected to report earnings per share of 34.6 pence for 2012, rising to 37.1 pence for 2013.

Barclays also pays a dividend and did so throughout the financial crisis. The payout is forecast to rise 8.3% to 6.5 pence per share this year and is expected to be followed by a 12% rise the year after. With the shares currently trading at 236 pence, now may be a good time to buy.

As always with shares, though, there are some risks. There is management risk: Barclays has a new chief executive. And there is litigation risk: the possibility of fines for Barclays' role in LIBOR manipulation. Add in the spectre of PPI and U.K. banking reforms, and you have a share that is expected to grow profit significantly yet trades on a forward P/E of only seven.

2. Lloyds Banking
Lloyds Banking
shares are up 67% in the past year and have far outstripped the shares of fellow banks Barclays and Royal Bank of Scotland. That might come as a surprise, given the scale of PPI problems at Lloyds. However, Lloyds has been barely touched by the LIBOR scandal, and markets are typically forward-looking. In fact, recent statements on the performance of the underlying bank have increased confidence in Lloyds' recovery.

The bank's third-quarter results confirmed a 5% reduction in costs and a handy 40% decline in impairments. Lloyds also reported that profitability has improved and that it has been disposing of assets faster than expected. All of this has inspired analysts to increase their profit forecasts for the year. Brokers now expect EPS of 2.4 pence for 2012, rising to 3.7 pence in 2013. The dividend is also expected to return during 2013.

It does seem Lloyds' profitability is accelerating as the economy recovers. The taxpayer paid an average of 73.6 pence per share when they bailed out the bank, and that figure no longer looks so distant.

3. Royal Bank of Scotland
Thus far, markets have been least convinced by the strength of the recovery at RBS. My judgement is that, of all the U.K.-listed banks, sentiment toward RBS is the worst.

This leads me to conclude that shares in RBS could do very well if the bank can demonstrate that it has turned around. And I seem to be in the minority that thinks RBS is doing just that. In a recent trading statement, the company confirmed it had exited the Asset Protection Scheme, which was an emergency insurance policy guaranteed by the taxpayer and had cost RBS 2.5 billion pounds.

The elimination of the APS means RBS is expected to report a much larger profit next year. Analysts expect 16.4 pence of EPS for 2012, followed by 27.4 pence in 2013.

4. ITV
The downturn was not kind to broadcaster ITV. Indeed, advertising is often the first thing businesses cut when looking for savings. In early 2009, shares in ITV fell as low at 19 pence, and the company reported a net profit of just 91 million pounds. But as ITV's markets have recovered, that profit figure has more than doubled.

A recent trading statement from ITV provided further confirmation of a comeback. Advertising revenue was ahead of the sector, and programming sales were up 15%. The statement drove the shares higher, and they now trade near a five-year high.

Analysts expect EPS of 8.5 pence for 2012, rising to 9.1 pence in 2013. The dividend is expected to rise significantly, hitting 2.3 pence for 2012 and 2.9 pence in 2013. While that yield is less than the FTSE 100 average, the P/E is also lower than most.

5. Antofagasta
In recent years, shares in mining groups such as Antofagasta have become a play on expectations of the Chinese economy.

In the last 12 months, the shares of Antofagasta have significantly outperformed those of BHP Billiton, Anglo American, and Rio Tinto. This outperformance can partly be explained by the large production increases that Antofagasta has managed to deliver. In the company's recent quarterly results, a 14% increase in copper volumes was reported. This was offset only partially by a 1% decline in realized prices. Antofagasta also produces at a profit margin far higher than its peers can manage.

While the shares may be volatile, the business has been progressing nicely. EPS has risen every year since 2009, and another two years of rises are expected. As for the dividend, this has been increased every year since 2007. Indeed, the 2012 payout is expected to be more than twice the amount for 2011, while another inflation-beating advance is predicted for 2013.

The U.K.'s best fund manager likes to buy ahead of bull runs
Neil Woodford is the U.K.'s leading professional investor. His 12 billion pound Invesco Perpetual High Income Fund has outperformed the FTSE 100 over one-, three-, and five-year periods. One of the ways he beats the index is buying out-of-favor blue chips -- before they rallied in a bull market. To learn more about Woodford, download the Motley Fool report "8 Shares Held By Britain's Super Investor." This report is 100% free. Click here to get the report delivered immediately to your inbox and start learning from this master investor.

David owns shares in Lloyds Banking Group and Royal Bank of Scotland. 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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