These are the shares expected to rise furthest if the market takes off.
Some shares exaggerate the market's movements. We've all seen them: soaring when the market rises and dropping like a stone in a market correction. There's a statistical measure for this: the beta. A share's beta is a measure of its own volatility compared with the broader market.
Statistics show that high-beta shares are the best to own if the market rises. Bear in mind that the same statistics reveal high-beta shares have fallen hard in market declines. A share's 'beta' is not permanent. Just because a share is high beta today does not mean that it will be in the future.
|Name||Price (p)||Beta||P/E (forecast)||Yield (forecast, %)||Market cap (£m)|
|Vedanta Resources (LSE: VED)||1,105||2.6||9.9||3.1||3,014|
|Royal Bank of Scotland (LSE: RBS)||302||2.5||17.5||0||34,269|
|Barclays (LSE: BARC)||256||2.4||7.3||2.5||31,288|
|GKN (LSE: GKN)||228||2.2||9.4||3.2||3,713|
|Lloyds Banking (LSE: LLOY)||47||2.1||18.7||0||32,902|
|Eurasian Natural Resources||270||2.1||8.1||2.4||3,477|
Data from Stockopedia.
The following five look particularly interesting.
1) Royal Bank of Scotland (RBS)
RBS is not out of the woods yet. Although political progress in the eurozone has done much to de-risk the sector, RBS remains the bank that investors worry about most.
As the markets vacillate between worry and hope, the RBS share price can swing wildly. When investors are bearish, they construct a scenario in which RBS could go bust. When they are hopeful, they imagine how RBS can get back to making over £5bn a year. The result is a volatile share price.
Fortunately for shareholders, in the last year, most of that volatility has been biased toward increases. So far in 2012, shares in RBS are up 49.8%.
Bottom line: don't let the doomsters stop you researching RBS shares.
2) Lloyds Banking (Lloyds)
If you thought RBS investors have done well this year, then you need to check out the Lloyds share price chart. Lloyds shares are up a massive 80.4% so far this year.
While compensations payments for missold Payment Protection Insurance have hurt Lloyds, there are signs that provisions are close to ending. The bank has also reported a dramatic reduction in impairments (writedowns for bad loans and assets). Of Lloyds and RBS, it is Lloyds' recovery that is most advanced.
Analysts expect that Lloyds will report earnings per share (EPS) of 2.5p for 2012. That puts the shares on a forward price-to-earnings (P/E) ratio of 18.7 times earnings. Significant growth is expected in 2013, bring the P/E down to 12.3 times forecast earnings.
Barclays is the laggard of the three banks. Its shares are up 'only' 45% since the beginning of the year.
It has been a rocky year for the bank. The revelation that Barclays had been involved in attempting to rig the key LIBOR interest rate hit the shares hard. The bank lost its chief executive as a result.
Investors continue to worry over the scale of any fine that Barclays may have to pay for its misdemeanours. The result is a depressed valuation that, for me, now means that the shares look very attractive.
Barclays currently trades on a P/E for 2012 of just 7.3 times forecast earnings, falling to 6.9 times the estimate for 2013.
4) Vedanta Resources
Vedanta is a diversified resources firm with operations in industrial metals, precious metals, oil and gas. As such, its shares are frequently buffetted by expectations for the global economy.
The company's last results included a 14% rise in revenues and a dividend increase of 21%. Vedanta also reported net debts of $9.8bn. It is likely that this debt is holding back the valuation of the shares and making the share price volatile.
As a result of the recent acquisition of some oil interests in India, Vedanta is expected to report a huge rise in profits this year and next. The dividend is also expected to continue rising, meaning that the shares trade on a 2014 P/E of 5.6, with the expectation of a 3.3% dividend yield.
As a supplier of engineering services to the automotive industries, GKN is also a play on global economic strength.
GKN reported net losses in 2008 and 2009. The company is now returning to a level of profitability it enjoyed before the financial crisis. The dividend is also heading in the right direction. The payout was raised 20% last year to 6p. While that is below the 9.1p paid out in 2007, substantial dividend increases are forecast for 2012 and 2013.
The forecast EPS for 2012 is 34.9% ahead of the figure reported for 2011. GKN's lower-than-average rating suggests that the market doubts that this increase can be achieved. Two weeks of the financial year remain. In October, GKN reported trading was in line with expectations for the year. The shares look cheap.
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> David owns shares in Royal Bank of Scotland and Lloyds Banking but none of the other companies mentioned.