LONDON -- Stop and take a look at the market now. Do you see what I see? Panic is easing, and shares are hitting new highs.
I trawled the market to find shares that are trading within 3% of their 52-week highs. But just because these shares have risen recently doesn't necessarily mean they should be bought today. To help investors understand how best to make money from shares, we have prepared a special free report: "What Every New Investor Needs To Know." Get this report while it is still free.
I then filtered my list by market capitalization. Many of these shares are FTSE 100 blue chips. Here are the shares trading at recent highs:
|
Company |
Market Cap (millions of pounds) |
Price (pence) |
Yield |
One-Year Price Change |
|---|---|---|---|---|
|
Vodafone |
88,957 |
181 |
5.3% |
8.8% |
|
GlaxoSmithKline |
74,465 |
1,480 |
4.8% |
9.4% |
|
British American Tobacco |
65,364 |
3,350 |
3.8% |
19.9% |
|
Unilever |
61,345 |
2,180 |
3.3% |
7.2% |
|
Diageo |
41,475 |
1,660 |
2.5% |
27.5% |
|
Imperial Tobacco |
25,509 |
2,570 |
3.8% |
19.7% |
|
National Grid |
24,228 |
679 |
5.8% |
10.6% |
|
Rolls-Royce |
16,457 |
879 |
2% |
38.8% |
|
SSE |
13,157 |
1,390 |
5.8% |
(0.6%) |
|
Compass Group |
12,673 |
676 |
3% |
10.7% |
|
Pearson |
10,292 |
1,260 |
3.3% |
4.3% |
|
Associated British Foods |
10,215 |
1,290 |
2% |
18.8% |
|
Next |
5,384 |
3,210 |
2.8% |
38.8% |
|
United Utilities |
4,583 |
672 |
4.8% |
10.2% |
|
InterContinental Hotels |
4,518 |
1,550 |
2.3% |
19.6% |
I picked out these three for further research.
1. Compass Group
With a market capitalization of 12.5 billion pounds, Compass Group is one of the largest companies you may never have heard of. That's because much of the company's sales are business-to-business.
Compass is a world-leading food and support services company. Compass' food operations consist of canteen and restaurant facilities for large employers in 50 different countries. The support services arm, which accounts for about 15% of revenue, consists of site and facility management. Compass runs food services for facilities ranging from factories and offices to sporting stadiums and oil rigs. Fans at Wimbledon enjoying strawberries and cream today are boosting Compass Group revenues; the company is catering supplier at the All England Club.
This summer, Compass will be selling food to athletes and fans at seven Olympic Games sites. Don't be fooled by these high-profile U.K. contracts; just 10% of turnover comes from the U.K. Compass is a truly international company. Its biggest market is the U.S. One of its most significant recent contract wins was with U.S. health-care provider Ascension Health. Compass will provide food and support services to 86 of Ascension's sites across the nation.
In the last five years, Compass has grown earnings per share an average of 25.5% per year. By the same measure, the dividend has increased 13.8% per annum. EPS is forecast to rise 16.3% in 2012, with the dividend increasing 8.6%. The shares today trade on 15.9 times 2012 consensus forecasts and come with a prospective dividend yield of 3.1%.
2. British American Tobacco
Cigarettes have long been considered a classic defensive investment. The level of repeat purchase means manufacturers have high visibility of future earnings. Consumers also have the expectation that prices will always rise at least in line with inflation. The combination of these two factors in any company frequently leads to a rewarding investment.
Few listed companies have demonstrated such resilience as BAT. In the last five years, the share's price-to-earnings ratio has never fallen below 10. Few listed companies have displayed such resilience.
BAT has not cut its shareholder dividend since 1999. Since then, the dividend has increased, on average, 12.6% a year. Its earnings have risen consistently for the last five years. Analyst consensus points to a 17.4% rise in EPS for 2012, followed by another 9.9% rise for 2013. The dividend is also expected to continue rising by around 9% per annum. This puts the shares on a forward P/E of 16 and a prospective yield of 4.1%.
While BAT's history and near-term future are impressive, I'm not sure the shares are for me. Regulation of smoking worldwide is becoming increasingly prohibitive. Worldwide consumption has barely increased in the last 10 years. Taxation appears to be ever-increasing. It looks as though tobacco's golden age may be over.
3. Diageo
Diageo was formed in the late 90s by the merger of Guinness and Grand Metropolitan. The combined company is the largest producer of spirits worldwide. In spirits, top brands include Smirnoff, Bushmills, Captain Morgan, and Johnnie Walker. Famous beers include Guinness and Red Stripe.
The company's shares are up 8.8% over the last three months and 27.5% in the last year. Today, the shares are trading at a record high.
Dividends at Diageo have been increasing since incorporation. For the last 15 years, dividends have risen, on average, 9.9% a year. Growth at Diageo is expected to continue. The dividend is forecast to rise by around 9% per annum for the next two years. EPS is expected to increase by an average of 10% a year.
As is often the case, the market expects investors to pay up for a company with history and growth forecasts like Diageo's. Today the shares trade at 18.2 times the 2012 consensus earnings figure and are expected to yield 2.7% next year. If you want less expensive exposure to alcoholic beverages, you might like to take a look at SABMiller
While Diageo's products face some regulatory pressures, the business is exposed to much less risk than tobacco. Diageo looks in good shape to continue to capitalize on demand for drink worldwide.
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