Q3 began with the UK 100 index of blue chip stocks trading just off fresh record highs.

Optimism was strong thanks to good weather and excitement ahead of the bumper summer of sport which had the potential to benefit UK high street retailers, pubs and supermarkets.

That said, not everything was rosy, the US picking trade fights with both China and Europe. Politics also remained front and centre, with Brexit, Trump and Eurozone populism on the rise.

As it stands, the UK Index is 11.4% off its best levels, with concerns about interest rates and bond yields having intensified, giving rise to a major revaluation of many asset classes.

Buying Opportunity?

Has the UK Index bottomed out? Are you looking at the chart, thinking the sell-off is temporary, another overreaction? Looking to revamp your financial portfolio, scouting names with upside potential?

Whether markets are in an uptrend or downtrend, many stocks still offer attractive trading opportunities over multiple trading horizons.

Accendo Markets is here to support you via its award-winning research service, dropping ideas in your inbox, and a floor of experienced and approachable traders at the end of the phone.

The following report unveils our Q4 Top 10 stock picks that could help make your latest investment decisions informed and deliberate.

Besides some exciting UK Index stock picks, we also look at the prior quarter’s best and worst performers and review the political and economic market drivers.

Our top picks comprise both well-known and lesser-known companies. But all are easily tradable UK Index stocks. Among them are a pharmaceutical giant, a retail investment platform and a resilient high-street retailer.

Have you shopped at Next recently, online or in-store? Why might the shares represent an exciting Q4 trading opportunity? Read on to find out.

Quarterly Review

Global trade tensions dominated the global equity landscape though the summer, as Donald Trump accelerated its attacks on China with several rounds of tariffs. China has returned the favour with tariffs in kind but been the more restrained party.

This has nonetheless hurt the likes of Miners, with investors concerned over slower global growth and supply of raw materials. With no solution in sight, picks from the sector are tricky.

Exposure to troubled European and emerging markets has also dented several sectors. Banks have been pressured by their Italian peers’ national debt exposure. Emerging markets FX has also been a source of worry as the USD strengthens. That said, rising interest rates is a benefit for bank profitability.

A Brexit deal could be just a around the corner. What the deal is, though, remains to be seen. UK and EU negotiators are aiming to reach a final agreement on the post-divorce relationship within the next few weeks. Could news of this boost Retailers and Financial Services names, hampered so far by Brexit uncertainty?

This year’s outperformers

Online grocer Ocado has had a bumper performance this year after inking partnership deals with major supermarket chains. Sky M&A saga ended with Comcast taking over the company, which is soon set to be delisted.

Steelmaker Evraz benefited from exposure to US market, which shielded it from some of President Trump’s EU steel tariffs. Retailer Next remained resilient in the face on shaky outlook for UK high street.

Supermarket Sainsbury unveiled a takeover bid for rival Asda which would create UK’s biggest supermarket chain. Its rival Morrison continued strong revenue growth and could be eyeing a merger with smaller peer Co-op to stave off competitive pressure, should the Sainsbury/Asda merger succeed.

Whitbread shares made a significant jump after the company sold its subsidiary Costa Coffee to Coca-Cola for £3.9bn. Consumer credit ratings agency Experian issued positive results in July with a 10% higher year-on-year revenue. Investment platform Hargreaves Lansdown started offering a new lucrative cash savings product that has been in the works for several years.

… and last quarter’s

Looking at the past quarter in isolation, some of the same names repeat from the previous list, including Evraz, Whitbread, Sky and Hargreaves Lansdown, pointing to a more sustained positive momentum from these companies.

Among other Q3 outperformers, AstraZeneca is notable for reaching fresh record highs in mid-August thanks to a string of new drug approvals in major markets. Its sector peer Shire continued negotiations with Japanese pharmaceutical company Takeda over a merger.

Consumer goods giant Reckitt Benckiser served as a reliable safe-haven for investors looking for shelter during recent market turbulence. That said, rising bond yields are starting to hurt defensive stocks, as investors prefer US sovereign debt to equities in the time of uncertainty.

Cruise ship operator Carnival benefited from warm summer weather that increased the number of bookings for holidaymakers. Insurance provider Admiral also benefited from a benign summer which led to lower levels of road accidents and insurance pay-outs.

And what of the underperformers? Which companies had a tough time in the last quarter, as well as in 2018 overall. Turn to the next page to read more about them.

Struggling stocks this year

Mexican silver miner Fresnillo struggled this year, with the stock’s poor overall performance continuing into Q3. The company suffered a dual blow of falling silver prices (-15% from summer highs) and the US-Mexico trade war.

Vodafone continued to be burdened by high levels of debt and uncertain growth rates in major geographies. Tobacco manufacturer British American Tobacco came under pressure as US authorities started probing the effects of tobacco-substitute products on health.

Corporate profits warnings were also a major theme for underperforming stocks this year.

Royal Mail warned on lower operating profits in 2019 due to rising cost pressures and lower productivity. IT developer Micro Focus issued several profits warnings throughout the year, leading to a large sell-off in its shares, however, it also announced a share buyback programme that contributed to the stock’s rebound of over 72% from 2018 lows.

Budget carrier easyJet struggled with the effects of rising oil prices which increased the airlines’ fuel costs. Wealth-management company Standard Life Aberdeen lost a major contract with Lloyds Banking to operate its £109bn pension scheme. DIY retailer Kingfisher announced weak results in its French business unit.

Summer blues

During the latest quarter, Paddy Power Betfair earnings prospects were hit by lower online exchange revenue, as well as increased regulatory pressure over UK FOBT terminals.

Energy utility company SSE warned on lower profits and its shares remained under the cloud of an investigation by UK’s Ofgem energy regulator. RSA Insurance was yet another issuer of profit warnings, blaming poor outlook on weakness in the UK insurance market.

Food delivery company Just Eat was feeling competitive pressures after reports that Uber Eats was considering a merger with UK rival Deliveroo.

Retail and food group Associated British Foods shares were trading lower in Q3 after the company announced a negative outlook for its sugar division and reported 2% lower sales in its Primark subsidiary. Shares in Chilean miner Antofagasta faired equally poorly as global copper prices retreated 16% below 2018 highs and the US-China trade confrontation damaged the UK Index ’s heavyweight Mining sector.

Over the next several pages, read in more detail about 10 potential investment opportunities that can develop in Q4 2018.

AstraZeneca (AZN)

Source: CMC Markets, 10 October 2018

Shares of international pharmaceutical giant AstraZeneca have been on a multi-year uptrend and are currently trading within close distance of record highs. Shares are just 6.6% away from all-time highs, bouncing over 25% from 2018 lows; +11.8% year-to-date.

Brokers are overwhelmingly bullish on AstraZeneca, with 85% of analysts saying either “Buy” or “Hold”, which is further amplified by a significant 68% of brokers seeing an upside for the share price in the medium turn to the average of 6179p.

Analysts at Barclays see (10 Oct) a positive quarter from AstraZeneca, helped by strong oncology sales trends, with results of the Solo-1 trial of cancer drug Lynparza (to be announced at an upcoming European Society for Medical Oncology conference) serving as a potential positive catalyst.

Will AstraZeneca return to August highs of 6122p (+6.7%) or fall to the July low of 5111p (-10.9%)?

Broker Consensus: 62.5% Buy, 22% Hold, 15.6% Sell
Bullish: Société Générale, Buy, Target 8400p, +47% (9 Oct 18)

Average Target: 6179p, +8% (10 Oct 18)

Bearish: Goldman Sachs, Sell/Neutral, Target 4080p, -29% (1 Aug 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Evraz (EVR)

Source: CMC Markets, 10 October 2018

Russia- and US-focused steelmaker Evraz has been benefiting from the recent rise in commodity prices. Latest strong Chinese economic data has helped the shares extend their 3-year uptrend to new record highs. China’s industrial production rose 6.1% in September, beating market consensus of 6%, while retail sales also topped forecasts. With China being one of the most important global producers and consumers of commodities, companies like Evraz have benefited from positive macroeconomic data. (Source: Dow Jones)

The steelmaking giant has also benefited from exposure to the North American market, which shielded it from some of President Trump’s EU steel tariffs. With Canada now joining US and Mexico in a new free trade association (USMCA), Evraz shares could gain further momentum thanks to operating steel mills in Canada.

The shares are within just 4.2% of 2018 highs, +70.9% from 2018 lows and +61.3% year-to-date.

Will Evraz move beyond new record highs of 600p (+9%) or fall to August low of 458p (-16.7%)?

Broker Consensus: 23.1% Buy, 53.8% Hold, 23.1% Sell
Bullish: Renaissance Capital, Buy, Target 610p, +9% (8 Oct 18)

Average Target: 493.09p, -12% (10 Oct 18)

Bearish: Alfa-Bank, Overweight, Target 420p, -25% (9 Oct 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

easyJet (EZJ)

Source: CMC Markets, 10 October 2018

European low-cost airline easyJet shares have struggled over the summer period thanks to the sustained rise in energy prices, with Brent Crude oil trading over $84/barrel (4-year highs). That said, easyJet has already hedged 52% of its 2019 fuel requirements at $538/tonne, while the average cost of European jet fuel stood at $724/tonne at the end of September, limiting the carrier’s exposure to rising prices. (Sources: Reuters, IATA)

Brokers are biased to the positive on easyJet shares, with only 2 brokers recommending to “Sell”, with 14 other brokerages (50% of analysts polled by Bloomberg) still advocate to “Buy” easyJet stock. An overwhelming 95% of brokers believe the share price has significant upside, with the market consensus holding for an average 1610p target price. Despite revenue headwinds and rising fuel costs, analysts at broker Liberum still see easyJet as a “long-term winner” (8 Oct), reaffirming a “Hold” rating in its latest update.

Will easyJet return to recent highs of 1620p (+35%) or fall to the Feb 2017 low of 907p (-24.4%)?

Broker Consensus: 50% Buy, 42.9% Hold, 7.1% Sell
Bullish: Exane BNP Paribas, Outperform, Target 2000p, +64% (10 Aug 18)

Average Target: 1610.15p, +32% (10 Oct 18)

Bearish: Berenberg, Sell, Target 1215p, 0% (28 Sept 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

London Stock Exchange (LSE)

Source: CMC Markets, 10 October 2018

Shares of the London’s premier financial market have been under pressure recently after analysts at European bank UBS noted (13 Sept) that the London Stock Exchange could lose a quarter of its euro-denominated clearing market to continental rival Deutsche Börse after UK’s exit from common European market. Following the news, London Stock Exchange stock has fallen 11.2% in past 3 weeks. Shares are down 9.5% from 2018 highs, +20.6% from 2018 lows, +11.4% year-to-date.

The exchange has been a subject of takeover rumours, with analysts at Berenberg (20 Sept) saying that LSE-ICE merger could generate $945m in synergies for shareholders, while a similar LSE-CME deal could offer up to $492m in synergies. Moving into Q4, LSE shares could benefit from news of a final Brexit agreement, with the market hopeful for a deal that avoids major fragmentation of the European financial services sector.

Will LSE return to September highs of 4814p (+13.7%) or fall to mid-April low of 4164p (-1.6%)?

Broker Consensus: 68.8% Buy, 25% Hold, 6.3% Sell
Bullish: AlphaValue, Buy, Target 6079p, +39% (4 Oct 18)

Average Target: 4868.85p, +11% (10 Oct 18)

Bearish: HSBC, Hold, Target 4300p, -2% (7 Sept 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Kingfisher (KGF)

Source: CMC Markets, 10 October 2018

Shares in DIY retail group Kingfisher are down from their summer highs after the company reported disappointing results (H1 pre-tax profits down 30%), with sales in France particularly poor. The future earnings outlook has been further clouded by soft consumer demand and struggling property market in the UK due to ongoing Brexit uncertainty. According to analysts at Moody’s (21 Sept), UK retail environment will remain very difficult overt the next 12-18 month due to subdued consumer confidence and the rise of online alternatives.

Kingfisher management appears to be reacting positively to the challenges, with brokerage Whitman Howard noting (19 Sept) that a new 5-year plan appears to be in the works within the company that could lead to new format trials and a property review to optimise loss-making spaces. Majority of brokers are bullish on Kingfisher, with 86% of analysts seeing a return to higher share price levels. (Source: Bloomberg)

Will Kingfisher return to summer highs of 319p (+21.7%) or fall to recent low of 241p (-8.7%)?

Broker Consensus: 57.9% Buy, 26.3% Hold, 15.8% Sell
Bullish: Stifel, Buy, Target 430p, +71% (19 Sept 18)

Average Target: 312.29p, +24% (10 Oct 18)

Bearish: Investec, Sell, Target 235p, -7% (8 Oct 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Hargreaves Lansdown (HL)

Source: CMC Markets, 10 October 2018

Shares of Britain’s biggest retail investment platform have fallen over 16% in October following a ratings downgrade from brokerage Numis (2 Oct), which trimmed its target price to 2102p, though analysts still believe that Hargreaves presents “a structural growth story” with double-digit run rate of net inflows.

“Do-it-yourself” financial portfolio management has steadily increased in popularity in recent years and Hargreaves’ introduction of a cash savings account in September adds a lucrative and long-demanded product.  With the Bank of England restarting its interest rates hiking cycle, returns on savings accounts are starting to accelerate and demand for user-friendly savings products is projected to increase. (Source: FT)

Resolution of persistent Brexit uncertainty and clarity regarding state of post-Brexit financial services market could also help shares regain their strong positive momentum seen during the summer months.

Will Hargreaves return to recent highs of 2280p (+16.8%) or fall to the May low of 1903p (-2.7%)?

Broker Consensus: 6.7% Buy, 46.7% Hold, 46.7% Sell
Bullish: Barclays, Overweight, Target 2200p, +7% (8 Aug 18)

Average Target: 1807.25, -12% (10 Oct 18)

Bearish: Jefferies, Underperform, Target 1650p, -19% (8 Oct 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Next (NXT)

Source: CMC Markets, 10 October 2018

Fashion retailer Next’s shares may be down from their June highs, when warm weather and the World Cup excitement lifted the spirits (and shares) of UK high street, but the latest half-year results (25 Sept) have helped the company’s stock rebound 8.4% from recent lows.

In its latest report, the retailer brought smiles to shareholders by raising its full-year pre-tax profit guidance. The company was also candid about the potential pitfalls facing the UK retail sector, reassuring investors that the management had a firm hand of the market’s pulse and is ready to respond to challenges facing the high street.

The company recently issued a statement (25 Sept), detailing its plans for the Brexit transition and its impact on prices and earnings, calming many investors. With many of Next’s top competitors facing severe problems (e.g. Debenhams, John Lewis), Next stands out as a potential sector bright spot going into Q4.

Will Next return to June highs of 6224p (+12.8%) or fall to the September low of 5087p (-7.7%)?

Broker Consensus: 22.7% Buy, 54.5% Hold, 22.7% Sell
Bullish: RBC Capital Markets, Outperform, Target 6700p, +23% (2 Oct 18)

Average Target: 5485.41p, +0.5% (10 Oct 18)

Bearish: Whitman Howard, Sell, Target 3700p, -32.3% (10 Apr 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

SSE (SSE)

Source: CMC Markets, 10 October 2018

Energy utility SSE has recently received a final regulatory approval for a merger with rival Npower, reducing the number of so-called “Big Six” energy providers to just five and reducing competitive pressure on the company. Besides investing in traditional sources of energy, SSE has also been active in diversifying its portfolio with a recent acquisition of offshore wind power provider Seagreen for £118m. (Source: FT)

Steady investment in growth assets, while at the same time maintaining a healthy 8.58% dividend yield, could help SSE shares withstand the downward pressure of a recent profits warning (unusually warm weather this summer and growing gas prices led to a reduction in energy consumption). That said, shares have already recovered over 5% from profits-warning lows and investments in infrastructure could help SSE shares in the upcoming quarter’s colder months which are forecast to see higher energy consumption.

Will SSE return to May highs of 1449p (+27.1%) or fall to the recent low of 1078p (-5.4%)?

Broker Consensus: 66.7% Buy, 33.3% Hold, 0% Sell
Bullish: Exane BNP Paribas, Outperform, Target 1650p, +45.9% (1 Oct 18)

Average Target: 1373p, +21.4% (10 Oct 18)

Bearish: Day by Day, Sell, Target 952p, -15.8% (8 Oct 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Sainsbury (SBRY)

Source: CMC Markets, 10 October 2018

Popular supermarket chain Sainsbury has been in negotiations this year for a merger with the Walmart-owned grocery chain Asda. While the merger is now facing scrutiny from the CMA competition watchdog, should the tie-up be successful, it would significant lessen competitive pressure on Sainsbury at the national level.

CMA has recently referred the Sainsbury/Asda merger for an in-depth investigation, precipitating the latest sell-off of the shares, which are now almost 10% below their August highs. The £7.3bn merger would create Britain’s largest supermarket chain and both companies have asked the regulator for a “fast-track” process. If approved, the shares have a strong potential for a rebound to recent highs. (Source: DowJones)

Brokers are cautious about Sainsbury shares, but biased toward a more positive outlook, with almost 79% of analysts saying either “Buy” or “Hold” and only 4 analysts saying “Sell”.

Will Sainsbury return to recent highs of 341p (+9.6%) or fall to the low of 294p (-5.4%)?

Broker Consensus: 36.8% Buy, 42.1% Hold, 21.1% Sell
Bullish: Barclays, Overweight, Target 375p, +19.4% (4 Jul 18)

Average Target: 332.38p, +5.9% (10 Oct 18)

Bearish: Goldman Sachs, Sell/Neutral, Target 231p, -26.4% (10 Jan 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Vodafone (VOD)

Source: CMC Markets, 10 October 2018

Shares of telecommunications giant Vodafone have been on a prolonged downtrend this year, falling to levels last seen back in 2010. Lack of significant revenue growth in key markets has been exacerbated by a very large amount of debt (circa €40bn) that the company has taken on to finance significant mergers & acquisitions in Europe, India and Australia. Recent change of a long-term CEO is also seen a considerable risk.

Nevertheless, with the company’s shares falling to 8-year lows, Vodafone now presents a bargain opportunity and the majority of brokerages are still seeing an upside potential from current levels. While the most bullish forecasts are dated, the average target of 207p still represents a significant share price appreciation.

20 out of 24 analysts polled by Bloomberg see a share price upside over the medium-term. Broker Berenberg notes (19 Sept) that Vodafone needs more earnings momentum to “drown out risk” and the upcoming half-year report (13 Nov) presents a trading opportunity for Vodafone shares, should the results turn positive.

Will Vodafone return to July highs of 188p (+22.8%) or fall to the May 2010 low of 124p (-18.9%)?

Broker Consensus: 62.1% Buy, 20.7% Hold, 17.2% Sell
Bullish: ROE Equity Research, Buy, Target 300p, +98.7% (14 Nov 17)

Average Target: 207.8p, +37.6% (10 Oct 18)

Bearish: Macquarie, Underperform, Target 125p, -17.2% (8 Oct 18)

Pricing data sourced from Bloomberg on 10 October 2018. Please contact us for a full, up to date rundown.

Want to take advantage of the above opportunities right now?

Whether you see UK Stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

While buying 15,730 shares in Lloyds Banking @ 63.57p requires an outlay of around £10,000 plus commission, the same exposure via a CFD requires about £2,000 plus commission (see right-hand box; margin + costs). If a trader invests in Lloyds Banking, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to Lloyds Banking shares - some of that capital could be put to good use elsewhere in the markets. (Source: CMC, Prices indicative)

CFDs are leveraged instruments, but you don’t have to use leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up as little as 20%/£2,000 (note that overnight financing costs will still apply). The remaining £8,000 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.

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