LONDON -- Market analysts like to use statistical measures to classify investment opportunities. One popular measure is what they call a share's "beta": a measure of its volatility versus the broader market's.
Impulsive private investors are often drawn to volatile high-beta shares. Long-term investors, including super-investors like Warren Buffett and Neil Woodford, frequently prefer low-beta shares: stocks that won't be tossed around by short-term market sentiment.
Later, I will explain how you can learn more from super-investor Woodford. Meanwhile, here are the 10 shares in the FTSE 100 with the lowest betas.
|
Name |
Price (pence) |
Beta |
P/E (forecast) |
Yield (forecast) |
Market Cap (millions of pounds) |
|---|---|---|---|---|---|
|
Severn Trent |
1,567 |
0.21 |
16.5 |
4.8% |
3,739 |
|
United Utilities |
672 |
0.31 |
17.2 |
5.1% |
4,585 |
|
Smith & Nephew |
661 |
0.32 |
13.9 |
2.2% |
5,861 |
|
AstraZeneca |
2,876 |
0.36 |
7.5 |
6.3% |
35,558 |
|
Reckitt Benckiser |
3,854 |
0.39 |
15.6 |
3.3% |
27,816 |
|
National Grid |
712 |
0.39 |
12.9 |
5.8% |
25,737 |
|
Centrica |
321 |
0.39 |
12.0 |
5.1% |
16,688 |
|
SSE |
1,399 |
0.42 |
12.3 |
6% |
13,420 |
|
Wm. Morrison Supermarkets |
262 |
0.43 |
9.6 |
4.5% |
6,264 |
|
Pennon |
604 |
0.44 |
13.8 |
4.8% |
2,197 |
Source: Stockopedia.
Four companies stood out in particular
1. Smith & Nephew
Smith and Nephew is a specialist orthopedic replacements manufacturer. In other words, it makes artificial joints and other body parts.
There is much less cyclicality in this sector than in many others. Unlike the major resources firms, Smith & Nephew is not hugely dependent on the growth of Chinese industrial manufacturing. Unlike the banks, Smith and Nephew's profits cannot be crushed by a setback in the U.S. housing market.
The result has been regular and reliable profits. Smith & Nephew's earnings per share have increased at an average of 13.3% annually over the last five years.
The earnings growth has outstripped the dividend, which has also grown fast: Smith & Nephew's dividend has increased every year since 2001, and in the last five years it has increased at an average rate of 10% per annum.
Unfortunately, it appears that Smith & Nephew's fantastic growth record is about to come to an end. Analyst consensus is for a 3.6% dip in EPS for 2012. A huge 31.9% increase in dividend is still expected for the year. Earnings growth is expected to return in 2013.
2. Reckitt Benckiser
Reckitt Benckiser has built an FTSE 100 company from a portfolio of leading domestic brands.
RB owns well-known household brands such as Dettol, Harpic, and Calgon. These are must-stock products for the U.K.'s supermarkets. The regard in which consumers hold RB's brands gives the company tremendous pricing power. Large sales then feed back into economies of scale, increasing profits further.
RB's growth record is even better than Smith & Nephew's. In the last five years at RB, EPS has risen 18.1% per annum. Dividends have increased 22.4% on average in the last five years.
As with Smith & Nephew, growth at RB is expected to slow over the next two years. In an attempt to address this, Reckitt last week announced the $1.4 billion acquisition of Schiff Nutrition. RB expects this acquisition will immediately bring vital scale in the vitamins, minerals, and supplements market in the U.S.
Reckitt Benckiser's long-term success has been built upon a series of strategic acquisitions like Schiff. Trading on a forward P/E of 15.6, RB is near the cheapest it has traded in five years.
3. Centrica
Domestic utility British Gas is owned by FTSE 100 utility firm Centrica.
While recent price rises have been controversial, the shares have not suffered: They trade within 10% of their all-time high. As you might expect with a utility, the dividend yield is high. In recent years, dividend growth has easily beaten inflation. The result is that the shares trade on a prospective yield of 5.1%, rising to an expected 5.4% next year.
EPS has also grown every year since 2009. Another two years of growth are expected, meaning Centrica shares trade on 12 times 2012 forecasts, falling to 11.4 times the expected numbers for 2013.
My attitude to price rises is, "If you can't beat 'em, join 'em." If more British householders directly owned shares in the energy companies, that might help temper their grief at having to pay more for energy.
4. Wm. Morrison
Shares in supermarket group Wm. Morrison have been struggling. Currently, the shares trade near a three-year low.
Morrison trades on 9.6 times forecasts for the full year. This means that on a price-to-earnings basis, shares in the company have not been cheaper in the last five years.
The dividend yield tells a similar story. As Morrison has grown considerably in recent years, the dividend has been rising fast. In the last five years, the payout has increased by an average of 21% per annum. As the share price has fallen recently, the yield has increased dramatically. The result is that for the first time ever, Morrison is now an income share.
Morrisons' problem is a lack of growth. While EPS increased last year by 11.1%, a rise of only 3.9% is forecast for this year. Compared with peers Tesco and Sainsbury's, Morrison is lacking two key planks in its offering: online and convenience.
Worryingly, Morrison has been losing market share. If earnings go into reverse, the shares would likely continue their fall.
Neil Woodford owns a selection of some of the U.K.'s lowest-beta blue chips. If you would like to learn more from this moneymaking genius, then get the free Motley Fool report "8 Shares Held By Britain's Super Investor." This report will be delivered to your inbox immediately. Click here to get your hands on our insights into the mind of one of the U.K.'s greatest-ever investors.
