15 Shares Near 52-Week Highs

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By

David O'Hara

Published in Investing on 5 July 2012

Investors are paying more for these shares than at any time in the last year.

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 high. 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 capitalisation. Many of these shares are FTSE 100 (UKX) blue chips. Here are the shares trading at recent highs:

CompanyMkt Cap (£m)Price (p)Yield (%)% price rise one-year
Vodafone (LSE: VOD)88,9571815.38.8
GlaxoSmithKline (LSE: GSK)74,46514804.89.4
British American Tobacco (LSE: BATS)65,36433503.819.9
Unilever (LSE: ULVR)61,34521803.37.2
Diageo (LSE: DGE)41,47516602.527.5
Imperial Tobacco (LSE: IMT)25,50925703.819.7
National Grid (LSE: NG)24,2286795.810.6
Rolls-Royce (LSE: RR)16,4578792.038.8
SSE (LSE: SSE)13,15713905.8-0.6
Compass Group (LSE: CPG)12,6736763.010.7
Pearson (LSE: PSON)10,29212603.34.3
Associated British Foods (LSE: ABF)10,21512902.018.8
Next (LSE: NXT)5,38432102.838.8
United Utilities (LSE: UU)4,5836724.810.2
InterContinental Hotels (LSE: IHG)4,5181,5502.319.6

I picked out these three for further research.

1) Compass Group

With a market capitalisation of £12.5bn, 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's food operations comprise canteen and restaurant facilities to large employers in 50 different countries. The support services arm, which makes up around 15% of revenues, consists of site and facility management. Compass runs food services from factories and offices to sporting stadia and oil rigs. Fans at Wimbledon enjoying strawberries and cream today are increasing 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 UK contracts. Just 10% of turnover comes from the UK. Compass is a truly international company. Compass' biggest market is the USA. One of Compass' most significant recent contract wins was with US healthcare provider Ascension Health. Compass will provide food and support services to 86 of Ascension's sites across the US.

In the last five years, Compass has grown earnings per share (eps) on average 25.5% a 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 (BAT)

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 (P/E) 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.

BAT's earnings have risen, year-on-year 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 16.0 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 nineties 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 and Captain 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. Earnings per share is expected to increase, on average, by 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. The shares 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 (LSE: SAB). This rival firm trades on a lower forecast P/E than Diageo, even though stronger growth is forecast.

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 capitalise on demand for drink worldwide.

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> David does not own shares in any of the above companies.

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Comments

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Dylantherabbit 05 Jul 2012 , 7:54pm

Three quality companies, I own shares in each of them. A little expensive at the moment though, particularly Diageo.

At the right price I would not hesitate to buy more of any of them and also a number from your list of 15.

mrburns2050 05 Jul 2012 , 8:24pm

I own Compass, BAT and Diageo

I were looking at SAB about 2-3 month ago during the whole will Greece blow up saga when they dropped in price. But never committed through waiting for the price to fall even further. Wish I would have bought now. Will remain on my watch list

theRealGrinch 05 Jul 2012 , 9:24pm

shares to avoid?

F958B 05 Jul 2012 , 11:17pm

theRealGrinch

In my experience, it is generally better to buy a share when it makes a new 12-month *closing-price* high, than one which makes a new 12-month closing low.

A new high is a sign that big money sees better times ahead for the company concerned and is willing to pay for it. A new closing high is often followed by a series of further new highs in the following months. In these volatile market conditions, though, a new high could drop back with the broader market in the regular sharp corrections, before further new highs are seen.

A new low is often a sign of a company with big problems. The big money is selling-out to save what they can, before even more bad news crashes the price further.

Of course, there will be occasional exceptions, but I'd generally much rather buy the new 12-m closing high than the new 12-m closing low.

GSK and IMT in mid-to-late 2011 are good examples of highs which went on to further highs. FGP and RBS being great examples of lows leading to further lows.

However, a share sitting *near* to a new 12-m high is not the same as one which has just made a new 12-m high, but those near to 12-m highs are generally worth watching to see how they respond to the high, and whether they can break through and streak off upwards through the broken resistance line.

alarmbells 06 Jul 2012 , 1:10pm

F958B

What good points you make. The whole subject of momentum investing and why it works is fascinating.

So why can't we have Fool articles which involve a degree of analysis and insight which goes beyond the likes of:

Four share hitting new highs
Fifteen shares hitting new lows
Five shares on a high dividend
Ten shares with high growth rates...
...ad nauseam

Articles based on the above should form the basis of analysis. Ie, can we infer or prove a general investment principle. As it is all we really have is a list. Which certainly interests me but provides too little insight.

For example, the article would be a lot more interesting if it had analysed what subsequently happened to the five 15 shares that hit new highs in July 2011, 2010, 2009, and then combine that with the arguments for and against momentum investing - perhaps quoting the experience of Investors Chron who have run such portfolios for several years.

RegDiversify 06 Jul 2012 , 1:17pm

I already hold 10 of your 15. The five I don't hold yield 2.5% or less and at the moment look expensive.

giveusaquid 06 Jul 2012 , 1:28pm

F958B/Grinch

Thanks for discussing that point. Interesting contrast to 'buy when fearful/sell when greedy'.

Is it only the actions of institutional investors with large holdings that would move the price beyond the resistance line as opposed to private investors buying/selling?

Are you talking about relatively mild or short term swings? - for example Tesco has just been through it's new low on the back of bad news, but many (myself included) think it will sort itself out in the longer term.

F958B 06 Jul 2012 , 2:06pm

giveusaquid

Most of the time, private investor influence on prices is relatively small. Private investors are there for the big money to offload expensive shares onto ("distribution"), or to spook private investors into selling good companies at low prices to the big money ("accumulation").

A recent stockbroker study suggested that shares which private investors bought averaged a 3% underperformance, while shares that private investors sold averaged a 3% outperformance. Ooops.

I am also a fan of Tesco.
Morrison and Tesco are at the top of my list for topup. I have topped-up MRW twice since I dumped one-third of my holding at Christmas (sold around 325; recently buying back around 260).

Going ex-dividend didn't help the share prices of the supermarkets.

At current prices, Tesco pay a utility-sized dividend, with vastly stronger finances underpinning it (much better interest/debt cover and much better dividend cover) - and even if Tesco never manages to increase sales again, it still should be at least as good an investment as a water company.
I also noticed the recent significant stake-building in Sainsbury by an investor in the Middle East. I'm not surprised; I'd be doing the same if I had several Billion.

I suppose it would be better for investors to ask whether a new low represents a company going through a rough patch and out of fashion* (which I believe applies to food retailers at present), or whether the new low represents a company with serious problems ahead (such as unknowns on the books of financials, or companies with high debt loads and a decline in trading).

* Even though the company is merely out of fashion, a downtrend in a share price can continue for a couple of years, so buying the first new 12-m low is very risky, but after a series of several new lows, there is a greater chance of the share price bottoming - as long as trading conditions and finances are not weakening.

Most of my buying is done quite close to 12-m lows (such as MRW in early 2011, or CNA in early 2012), but I get extra cautious if the low is actually broken. Being near a 12-m low or high is very different to actually breaking a 12-m low or high.

eccyman 06 Jul 2012 , 2:19pm

" In spirits, top brands include Smirnoff, Bushmills and Captain Walker"

Captain Walker?? Is that a blend of Captain Morgan rum and Johnny Walker whiskey?

F958B 06 Jul 2012 , 2:24pm

I should also add:

If company profits and dividends increase virtually every year (which is true for most of the above 15, but certainly not true for every type of company) then it should be expected that over the very long term, the shares will gradually move higher and periodically have a wave of new 12-m highs.

For example: BATS shares were priced in the low-£2 range in the early 1990's.
Had the shares not gradually made new highs from time to time, the current dividend of over £1 per share would now represent a huge 50% dividend yield which continues to grow at a reasonable rate.

I'm not a fan of the price of BAT shares at present - with a forward P/E in the high-teens - but with earnings for 2012 expected to be the highest ever, it's hardly surprising that the shares continue to drift higher.
Same with many of the others on the list: profits are at, or close to, the highest ever. So why shouldn't the share price be similar (subject to some influence due to market fashion)?

So we have Tesco laying face-down in the dirt at the moment, trampled and unloved.
With a likely forward dividend yield of almost 5% and forward P/E of 9.

Despite Tesco's "slowdown", and despite the £1bn investment into its UK stores, it is expected that 2012 will still be Tesco's most profitable year ever; about 1% higher profit than 2011.
Same with Morrison.

giveusaquid 06 Jul 2012 , 3:19pm

Thanks for taking the time F958B

Fool articles may not always dig as deep as some would like but the best articles for me and the ones I seek out are those that have comments. I learn as much from them as the articles themselves.

'Most profitable year ever' Wouldn't suprise me.

F958B 06 Jul 2012 , 4:14pm

giveusaquid

Yes, should the headlines for Tesco be:

"Growth slowdown at Tesco in gloomy economy"

- or -

"Tesco looks forward to another year of record profits"

?

zubaduck 06 Jul 2012 , 5:55pm

good article but better yet were the comments - looks like we have some decent heavy weights making some very sensible comments here. I learnt more from the above comments than from some books I have read.

I'm not sure I would buy all 15 of the list, particularly wary of RR which is trading on far too high a multiple for my taste. But the tsco comments are all spot on. I gently accumulate every now and then and have a longterm view of these so daily fluctuations don't bother me much. even if tsco breaks the 285 low, I would still be buying. It's quite simple really as my mate in Omaha has been quoted as saying, it's a simple business that even I can understand, irrespective of how much people tire of the shops, everyone I know goes and spends 2 hours there every Saturday morning, it is well run, has an incredible public relations team, data on all it's customers behaviour, an impressive moat and a heap of cash. Why would I care if the share price drops 25% in a year. It will recover and in the meantime pay me far more than the Government can afford to me in interest. Plus my savings are safer in the local supermarket than they are at RBS and Barclays.

jackdaww 06 Jul 2012 , 9:04pm

zubaduck and others

i most often go straight to the comments without reading the article at all.

Xrat 07 Jul 2012 , 8:13am

Zubaduck,
I noticed the huge number of Chinese tourists around the world and wanted to buy into Chinese Airlines. Investing that far afield and with their way of accounting was a bit to risky for me. RR were the next best thing, their aero engine technology is good and it's going to take a lot of time and investment to break into the market. Other than RR here seem to only be a couple of U.S. logo's any aircraft engines, the market seems to be sown up.
Fortunately I was looking just as the Aussies kindly thrashed their 'Trent engines' and dropped the price for me. RR have done very well since.
When I stop seeing Chinese tourists I'll step out of the elevator, hopefully near the penthouse.

richjfool 07 Jul 2012 , 10:50am

Eccyman, - I think Johnny has been promoted(to Captain)!!

Note: Scotch = whisky
Irish or other whiskey

As I eat out and drink I hold Compass and Diageo, but as I don't smoke I don't hold BATS.

Giveusasquid = I rarely eat seafood!

ScottishPound 07 Jul 2012 , 5:53pm

An alternative to Diageo is Marston's (LSE:MARS), less pricey and higher yielding, although not global.

jaizan 08 Jul 2012 , 3:01am

If Tesco is an simple business we can all understand, what's the difference between that and Carrefour, which seems to have had massive drops in it's share price over the last decade? Unfortunately, I've not found much material to explain the long term performance of the latter.

supasap 08 Jul 2012 , 5:39pm

Captain Walker..... according to the Who he fathered an unborn child called Tommy....... one of the best bits on the album, demonstrating Townsend's mastering of acoustic guitar

zubaduck 10 Jul 2012 , 2:21pm

Xrat - don't get me wrong on RR - it was a great play at the right price. I just don't see too much upside in it for me given that I am not in and would be entering at current prices. I also agree they are solid and dependable. If I held I would not be selling but I am not keen to enter on this multiple.

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