Music mogul Simon Cowell has got a few quid. So, which UK blue chips might he pop in his portfolio?
Simon Cowell is an awesome judge. He's prepared to reject rubbish candidates and is expert at sorting the diamonds from the dross. He knows his Susan Boyles from his Wagners, and his Leona Lewises from his Jedwards.
Simon loves to make a judgment and back a winner. So, I reckon he might make a good stock market investor. I've trawled the market to find five stocks that the bum-chinned bad-guy might buy today. My five for Simon are:
|Company||Price (p)||P/E (forecast)||Yield (forecast, %)||Market cap (£m)|
|British American Tobacco (LSE: BATS)||3,252||15.9||4.1||63,600|
|HSBC (LSE: HSBA)||644||11.5||4.2||118,230|
|ITV (LSE: ITV)||103||12.0||2.3||4,200|
|Vodafone (LSE: VOD)||162||10.3||7.3||78,710|
|Unilever (LSE: ULVR)||2,393||18.9||3.3||68,330|
1) British American Tobacco
Simon Cowell is a big smoker. One of his favourite brands is Kool Menthols. Did you ever hear the phrase "I liked the product so much, I bought the company"? Kool Menthols are produced by Reynolds American, a US tobacco company that is 42% owned by British American Tobacco (BATS).
British American Tobacco has a great history as an investment. In the last five years, shares at the company have risen 72.9%. In that time, the dividend has risen every year and is now 226% of the level it was in 2006. The average annual dividend increase since 2006 has been 17.7%.
Earnings per share (EPS) at the company is now 61.6% higher than it was in 2006. That's an average annual increase of 10.1%.
When you are as rich as Simon, looking after your money isn't trivial. HSBC is a big provider of private banking services to wealthy clients around the world. There is much to recommend HSBC for: not only as a bank but also an an investment.
On looking at HSBC's trading record in the last few years, I am beginning to believe in the banking sector again. Although HSBC did resort to a right's issue in early 2009, it took place a long way from the levels some of its rivals were forced to raise cash. Despite the turmoil, HSBC continued to pay a shareholder dividend. Sure, that dividend was cut but it is now increasing again.
Earnings are yet to recover to pre-crisis levels but are well ahead of the levels achieved in 2008, 2009 and 2010.
ITV is probably Simon Cowell's biggest customer. The share price graph for this TV company looks similar to a graphical count of X Factor viewers, but upside down.
While audiences may be running out of interest in ITV's karaoke-with-fireworks talent-trawl, investors have been snapping up shares in the company. The shares are up 57.7% in the last 12 months as the TV advertising market has recovered.
ITV is expected to deliver 8.6p in EPS this year. That's a massive 39.8% increase on last year's result. The dividend is also expected to rise significantly.
The operational progress means that ITV shares today trade on 12 times consensus profit estimates for 2012, falling to 11.3 times expectations for the year after. The shares still have some headroom to move higher.
When Simon Cowell gets papped outside of the TV studio, he always seems to have a mobile phone to his ear. Simon's a smart guy, and he understands the general public. He'll know that if he can't run his life without mobile services, then a lot of other people will be thinking the same.
It is this demand that has turned Vodafone into one of the most cash-generative companies in the FTSE 100 (UKX) today. Vodafone uses that lovely cash flow to pay massive shareholder dividends. This year, the payout from Vodafone is expected to hit 11.6p. That's 7.3% at today's prices.
The company is also planning a £1.5bn buyback of its own stock. I expect this buying could push Vodafone shares higher.
Simon's so vain that I bet he thinks Carly Simon's song You're So Vain is about him. He's taken male grooming to a level that would make even Liberace think twice.
Unilever is the company behind a huge range of household consumables. Brands range from food and detergents to beauty products such as Dove, TRESemme and Brut. The growing number of men in the world using beauty products is a bonanza to gloop manufacturers like Unilever. Twenty years ago, they could only sell to women.
Unilever's brands help mantain premium pricing and customer loyalty. The predictable cashflows that Unilever's sales deliver mean that investors are prepared to pay a high premium for the shares. This financial strength also flows through to dividend payments. Expectations are for a 7% dividend increase this year, to be followed by a 6.7% increase the year after.
If you are interested in pursuing top-brand investments, then you should check out the methods of multi-billionaire Warren Buffett. Mr Buffett is a big fan of buying companies with strong brands. This super-investor has recently been buying shares in a UK-listed company. To find out which one, get this free Motley Fool report "The One UK Share Warren Buffett Loves". This report is 100% free and will be delivered immediately to your inbox. Just click here to start learning from this master investor today.
> David owns shares in Vodafone and none of the other companies mentioned. The Motley Fool has recommended shares in Vodafone.