MENU

The Biggest Winners For A Forthcoming Market Surge

It can only be a matter of time.

I mean, with the FTSE 100 flirting with 6,750 and just needing to gain around 250 points…

or less than 4%

…it surely won’t be too long before this market breaches the celebratory FTSE 7,000 level and strikes a fresh all-time high.

I have been banging the drum for FTSE 7,000 for months now, but I see the rising tide has been converting a few more to the cause.

Indeed, no less than the global chief investment officer for equities at Fidelity Worldwide Investments, Dominic Rossi, has now joined the bull chorus and reckons the blue-chip index should surpass 7,000 sometime soon.

According to Investment Week, Mr Rossi said the other day:

“Valuations have moved up over the course of the last 18 months in particular, but certainly they are not overvalued as we have very accommodative central banks. Therefore, there is scope for a re-rating of equities.”

Yep, those accommodative central banks are still keeping base rates ‘artificially’ low on a ‘temporary’ basis…

…allowing companies to thrive, lift their dividends and watch their share prices rocket…

…and giving every reason for stubborn cash savers to join the market before the FTSE zooms past 7,000 and embarks on an illustrious bull run that could take the index to 10,000 and beyond.

They will have these four blue-chips at the top of their buy lists

I find it almost impossible to see this market keeping below 7,000 for very long.

In fact, we might not even need a full economic recovery, a complete solution to the eurozone or even a total reformation of the banks for the FTSE to register new peaks.

On the contrary, it may simply take a few income buyers of mega blue-chips to push the index those 250 points higher.

I’m talking about mega blue-chips such as:

  • Royal Dutch Shell, latest quarterly dividend up 5%;
  • BP, latest quarterly dividend up 6%;
  • HSBC, latest quarterly dividend up 11%, and;
  • GlaxoSmithKline, latest quarterly dividend up 6%;

…which when combined represent almost 25% of the FTSE 100 by market cap…

…and which continue to produce huge profits, continue to pay higher dividends…

…and continue to trade on share prices that offer dividend incomes of 4%, 5% or more.

Surely everyone throwing in the towel on rock-bottom interest rates and looking for top-notch dividends will have those four mega blue-chips at the top of their buy lists.

And a bit of momentum in those four blue-chips from desperate income seekers could go a long way to narrow that 250-point gap towards FTSE 7,000…

I have always believed that bull runs favour the brave

Now owning Shell, BP, and so on is all well and good if you like steady, safe dividends.

Indeed, I would not argue with anyone buying those mega stalwarts right now.

But… I have always believed that bull runs favour the brave…

…and sleep-at-night stalwarts are unlikely to lead the market higher as and when this bull phase really gets going.

You just have to look at the biggest FTSE 100 winners from last twelve months to see how the major gains have been enjoyed from a mix of cyclicals and turnarounds:

  • ITV +116%
  • easyJet +104%
  • Lloyds Banking +77%
  • GKN +68%

In contrast, Shell, BP, HSBC are Glaxo have averaged just a 10% gain since this time last year.

But there is a group of shares that could even outpace the likes of ITV and Lloyds in the years ahead.

Their setbacks have been hidden and there’s little to keep shareholder reality in check

Noticed recently how well some flotations have done? Here are a few that have caught my eye:

  • Royal Mail – up 77% since October 2013
  • Crest Nicholson – up 75% since February 2013
  • Jupiter Fund Management – up 138% since June 2010
  • Ocado – up 143% since July 2010

An explanation for the superb gains? Well, investors in bull runs love ‘new stories’.

You see, stocks such as Royal Mail and Crest Nicholson are not burdened by a ‘past’. Sure, they’ve been around for years…but they weren’t quoted during the banking crash…

…which means any setbacks have been hidden from view.

As such, there can be little to keep shareholder reality in check.

In fact, the City is free to project cost savings at Royal Mail, incoming client money at Jupiter and order numbers at Ocado all it wants… as investors have no history from the banking crash to hold their projections back.

On the other hand, the likes of ITV and Lloyds suffered the full market glare of profit warnings, dividends cuts and even rescue rights issues during the crunch…

…and investors will remember those let-downs for some time to come and could easily keep a lid on future projections and buy limits, just in case.

The shares with the greatest chance of delivering the most extraordinary gains

I’ll leave you with this one last message about bull runs and flotations.

I am convinced the very biggest winners of any forthcoming market surge will be new, small companies…

…especially ones that operate in dynamic growth industries where investors can easily extrapolate gigantic sales and profits in the years ahead.

Just take a look at these triple-digit wonder stocks that all floated during the last year or so:

  • AB Dynamics (driverless vehicle testing) – up 101% since May 2013
  • Blur (service-commerce exchange) – up 436% since October 2012
  • WANDisco (data storage) – up 561% since June 2012
  • Utilitywise (energy management) – up 235% since June 2012

As this market continues to rise and nears the 7,000 level…

…I am positive it will be these young, sexy newcomers to the market that have the greatest chance of being pushed to the most ridiculous heights and delivering the most extraordinary gains.

All you need is the bullish confidence to invest in such new leaders.

Foolish final thought

Here at the Fool, we believe in a mix of growth and income stocks, and our top analysts have named one company they believe will bring you superior capital gains...

...and such is their conviction, they have declared the share "The Fool's Top Growth Stock Today".

Simply click here for the full report -- it's free.

> Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in GlaxoSmithKline.