We look at the out-of-favour laggards in the rising FTSE 100.
The FTSE 100 (UKX) has put on quite a spurt over the past couple of months. The UK's leading index has rallied from around 5,600 in mid-November to comfortably above the round-number psychological level of 6,000.
Not all companies have participated in the rally. The blue-chip names in the table below are the 10 biggest laggards: all have posted a negative return over the period.
|Company||Recent share price||% price change since 16/11/12||Forecast P/E||Forecast dividend yield (%)|
|J. Sainsbury (LSE: SBRY)||332p||-0.0||11.4||5.0|
|Wm. Morrison Supermarkets (LSE: MRW)||256p||-0.0||9.4||4.6|
|Carnival (LSE: CCL)||2400p||-1.1||16.6||2.8|
|John Wood Group||740p||-4.0||14.1||1.5|
|Randgold Resources (LSE: RRS)||5875p||-7.5||18.8||0.5|
|Aggreko (LSE: AGK)||1749p||-16.5||17.5||1.3|
As a contrarian investor, I'm always interested in companies that are out of favour with the market. Unloved shares have the potential to be some of the best long-term investments.
What does the table above tell us? Well, first, there's quite a mixed bag of companies, but a few trends: two supermarkets (Sainsbury's and Morrisons); two precious metals miners (Fresnillo and Randgold); and, finally, oil firm Tullow and oil industry support services group John Wood.
The other thing the table tells us is that most of these companies were highly rated before the Footsie rally -- and that the majority still are. There's no shortage of above-market-average price-to-earnings (P/E) ratios and below-market-average dividend yields!
So, which of the rally laggards look most interesting for investors? I'm going to give you my choices.
Sainsbury's may have the highest P/E of the UK's listed supermarkets, but the whole sector is out of fashion and Sainsbury's rating of 11.4 is well below the Footsie average of 15.6.
For investors with an eye for income, Sainsbury's dividend yield of 5% looks attractive: it not only trumps the yields offered by Tesco and Morrisons, but is also comfortably ahead of the 3.3% market average.
Sainsbury's released a Christmas trading update on Wednesday, which was greeted a little coolly by the market because, I think, of a cautious outlook statement. Nevertheless, with 32 consecutive quarters of like-for-like sales growth, the momentum in Sainsbury's business must be the envy of its rivals.
Morrisons also released a Christmas trading update this week that similarly underwhelmed the market. Total sales and like-for-like sales both declined over the period. Nevertheless, the company is expecting its full-year performance to be broadly in line with its expectations.
Morrison's P/E of 9.4 is not only the lowest of the laggards in the table above, but is also significantly lower than its rivals and the market. The 4.6% dividend yield isn't bad, either, for a company committed to delivering annual double-digit dividend growth through to 2013/14.
The UK's fourth-largest supermarket may be behind Tesco and Sainsbury with its convenience store and online offerings but, arguably, it has more to go for in these areas, and growth will be faster from the low base if management successfully executes on the strategy.
The chairman of cruise operator Carnival has described 2012 as the most challenging year in the company's history, as a result of the Costa Concordia tragedy at the start of the year. Nevertheless, the shares recovered strongly through 2012 before falling back somewhat since the company released its annual results in December.
Carnival warned that while booking volumes for the first three quarters of 2013 are in line with last year, ticket prices have been lower. On the positive side, the company -- which paid shareholders a nice special dividend last year on top of the ordinary dividend -- anticipates significant free cash flow in 2013, which it intends to continue to return to shareholders.
Carnival's P/E of 16.6% remains a bit above the market average, but I reckon it deserves a premium rating because of the compelling demographic drivers that support the business and the company's strong position in the sector.
Top Footsie gold miner Randgold Resources has suffered a few setbacks of late, most recently a fire at one of its mines in December. As a result the shares haven't joined in the Footsie rally, and it has been the second-worst performer during the period.
P/Es and dividends don't mean a great deal for precious metals miners. What Rangold has going for it are the resources in its name -- which are substantial -- and a long-established management with a very successful record of delivering the goods.
Rangold has proven to be a leveraged play on the price of gold since listing on the London stock exchange in 1997. The shares have recently been trading around 25% below their 52-week high, so if you're in the market for a geared bet on gold, Randgold could be well worth considering.
Aggreko has been the worst performer during the market rally by some margin. The temporary power provider released a trading update in December that saw its shares plunge 20%, wiping around £2 billion off its stock market value.
The company reported that its 2012 results would be in line with expectations, including growth in earnings per share of at least 15%, but that it expects performance in 2013 to be slightly lower than this year. Of several factors cited, weakening economic growth in many of the emerging markets the group operates in is perhaps the most significant.
Aggreko remains on an above-market-average P/E of 17.5. However, as the long-term structural drivers for the business remain intact, patient investors may feel a P/E in the teens is not ungenerous for a company that has previously traded on a mid-twenties rating.
New and special
To wrap up, I can tell you that ace City investor Neil Woodford holds two of the 10 companies that have been left behind by the Footsie's recent rally to 6,000. Woodford's funds have returned well over 300% in the last 15 years, trouncing the market, so he's definitely an investor worth learning from.
If you are interested in learning about Woodford's enormously successful approach, help yourself to a newly updated free Motley Fool report, "8 Shares Held By Britain's Super Investor".
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> G A Chester does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Hargreaves Lansdown.