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After a very strong Jan-Mar period, we take a look at a selection of blue-chip stocks which could offer exciting trading opportunities in the Apr-Jun quarter. In some cases these household names will have performed well and in other cases less so. However, all are worth a look at in terms of potential for them to maintain their current trend or indeed reverse, meaning opportunities to trade both long (buy) and short (sell).
Q1 2015 looks set to enter the books as one of the UK 100 ′s ten best quarters since inception in 1984, with the Jan-March period this year delivering a whopping 5.1% return so far, equating to more than double its average return of 2.36%.
Over the 30yr period, the index has seen first quarter performances deliver anything from a gain of 19% in 1987 to a loss of 11.7% in 2008 – in the midst of the financial crisis – highlighting the exciting volatility that makes trading the index and its constituent stocks such a thrill for short term traders and longer term investors alike, with plenty of opportunities to profit from both upwards and downwards movements.
After such a strong start to the year with January delivering an impressive 5x the average 0.6% return and February following suit with 3x the average 1.0% return, the recent sell-off from fresh all-time highs (15 yrs in the making) sees March buck the trend with a 0.7% decline versus an average 0.7% return. Does this mean a reversal is underway or is this a merely a blip/pause amid a longer term uptrend?
Recent analysis had us look at the UK 100 and indices and the stock prices therein relative to their highs (both historical, 6-month, 1yr and 2yr). Of note were a remarkably similar 35% of both indices’ constituents trading within 5% of all-time highs, and 63% within 5% of 6-month highs.With so many trading so close to recent highs, it is understandable that the index trades there too, something which has attracted much attention lately as the UK bluechip list finally made it (just) into clear water to trade at all-time highs for the first time in 15 years, joining peers like the DAX and Dow Jones which had been navigating said water for almost 2 years.With the commodities space having been a hindrance for so long, could a long awaited recovery be the UK 100 ′s saving grace? Will the depressed banks add to the excitement with further gains? Will much talked of UK deflation be avoided, allowing the housebuilders to continue returning record breaking results?
We’re now out of the blocks and accelerating into Q2. The exciting results season will soon again be upon us and companies are due to begin updating us on their recent performance. Share prices will react, as they always do, with potentially bigger than expected moves both up and down based on the sales and profits growth reported.
Shares are seldom static at times like these. Volatility tends to rise in the weeks either side of the update as market participants anticipate and digest the news. Price moves on results day itself are often significant, offering potentially attractive opportunities for short-term traders.
The outlook management provides compared to market expectations can and does affect prices too – giving investors the confidence to buy (go long) or sell (go short) the stock to their advantage.
The likes of Lloyds, RBS and Barclays are invigorated after the announcement early in April that the Bank of England’s stress tests – designed to ensure the resilience of our financial institutions in the face of another global financial meltdown – would be particularly brutal, simulating an economic slump that will take into account a massive Chinese slowdown and a big failure in the Eurozone, two scenarios that are looking only a little bit less than likely today.
Concerns are very real, and confidence in banks is somewhat of a pipedream at the moment, but the UK’s big three have been busy separating their retail and investment divisions. Will it be enough to see them through the stress tests?
Lloyds Banking Group (LLOY)
Will the price rise towards 14-month highs of 86p or fall towards lows of 71p?
Royal Bank of Scotland (RBS)
Will the price rise towards 12-month highs of 415p or fall towards lows of 292p?
Commodity prices have weighed on the UK Index , arguably holding it back from partying with its more tech-heavy peers the DAX and Dow Jones. It all began in summer 2014 with Oil’s slow and steady collapse that many argue is still happening today. This quarter has seen at least one seminal event – the merger deal between Royal Dutch Shell and BG Group – that could have far reaching consequences in the markets that will be highly sensitive to changes in already low commodity prices. Have we seen a bottom to the oil price? If not, will predators be licking their wounds having paid billions for sector underperformers? One thing’s for sure – Q2 will likely see large price moves in the commodities sphere. See below for stocks to watch.
Anglo American (AAL)
Will the price rise towards 18-month highs of 1660p or fall beneath lows of 989p?
Afren (AFRE)
Will the price rise towards 12-month highs of 165p or fall beneath lows of 3p?
Centrica (CNA)
Will the price rise towards 18-month highs of 400p or fall towards lows of 234p?
The Pharmaceuticals sector is traditionally defensive – largely devoid of big, unpredictable changes in share price. But Q2 of 2015 has already seen one huge M&A deal that has affected two companies in opposing ways. Anything can happen, and big pharma has not been without its fair share of M&A hype recently. Will the below household name look to strengthen its position in the face of past takeover attempts by US peers? Or will return-hungry shareholders encourage it to succumb to the next bid, eager for a profitable get-out clause?
GlaxoSmithKline (GSK)
Will the price rise towards 12-month highs of 1700p or fall towards lows of 1300p?
2015 could be a big year for retailers. With inflation the lowest it’s ever been and low oil prices conspiring with a supermarket price war to drive it negative before things improve, which of the UK big three (Tesco, J Sainsbury, WM Morrison) is best placed to weather the coming storm?
Tesco (TSCO)
Will the price rise towards 12-month highs of 310p or fall towards lows of 155p?
The house builders have been bigged up (and been bigging themselves up) this quarter, with the likes of Bellway reporting huge rises in profits (50% in Bellway’s case) for the past 12 months. It goes without saying that tradable opportunities in the construction sector will present themselves in 2015. Is it ‘long all the way’ as the UK government pushes on in its quest for affordable homes for first time buyers? Or will deflation and the threat of negative equity make for a collapse in new home sales with investors cutting and running from the sector?
Redrow (RDW)
Will the price rise towards 12-month highs of 368p or fall towards lows of 225p?
Taylor Wimpey (TW)
Will the price rise towards 12-month highs of 160p or fall towards lows of 86p?
The tech sector is at a crossroads as small, gutsy companies come onto the scene looking to topple big players in a field that moves as quickly as the electric current through the wires of its wares.
ARM Holdings (ARM)
Will the price rise towards 3-month highs of 1210p or fall towards lows of 943p?
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research