Some blue chips have actually fallen in 2013. Are they now bargains?
Many investors think we are now in a new bull market. Since the beginning of the year, the FTSE 100 (UKX) index is up 3.6%.
Most FTSE 100 stocks have risen in that time but some are down. I've found five fallers that look like they could be worthy of further research.
|Company||Price (p)||2013 P/E (forecast)||2013 yield (forecast, %)||Market cap (£m)|
|Diageo (LSE: DGE)||1,802||17.4||2.7||44,850|
|National Grid (LSE: NG)||692||12.6||5.9||25,010|
|J Sainsbury plc (LSE: SBRY)||322||11.0||5.1||6,150|
|Marks and Spencer (LSE: MKS)||365||11.3||4.6||5,910|
|Unilever (LSE: ULVR)||2,405||18.6||3.3||67,360|
Data from Stockopedia
Unilever is the company many people have never heard of but whose brands are ubiquitous. The Anglo-Dutch giant owns a collection of household and food brands such as Flora, PG Tips, Vaseline and Domestos.
Unilever is the classic highly rated quality share. Whatever the weather in the markets, Unilever shares never look cheap. That does not mean that the shares have not made a good investment in the past. In the last five years, Unilever shares are up nearly 40%. That return gets even better when you add in dividends. In that time, the FTSE 100 has failed to break even.
The diversity of Unilever's product offering brings a resilience to the company's earnings that investors love.
J Sainsbury plc (Sainsbury's)
Although Sainsbury's shares are down this year, its Christmas trading showed good growth. The supermarket's January trading statement reported a 1.5% increase in like-for-like sales and a record Christmas.
Sainsbury's has now enjoyed 32 successive quarters of sales growth. In a market where some operators are clearly winning (Waitrose) while others are losing (Morrison's), Sainsbury's is increasing its market share.
The market seems to be worrying that the difficulties that have visited Morrisons and Tesco could soon find their way to Sainsbury's door. Sainsbury's shares currently trade at a price-to-earnings (P/E) ratio premium to both. The market is likely discounting Sainsbury's shares because of the difficulties at its peers.
It's hard to ignore the yield on offer at Sainsbury's. The payout for 2014 is expected to reach 17.4p, that's a 5.4% yield at today's price.
Marks and Spencer
The New Year trading statement from Marks and Spencer spooked the market. The company reported disappointing sales. Rivals Debenhams, Next and John Lewis all fared far better.
M&S has long epitomised the British high street. However, away from food, it looks as though M&S is becoming less relevant. In recent years, shoppers have seen a string of once-great chain stores disappear from their high streets. On Thursday, the shutters came down at HMV. Marks needs to reverse the decline fast, for the sake of both the company and its share price.
Profit forecasts for Marks in 2013 have also been declining. In the last year, the consensus earnings per share (EPS) forecast for 2013 has fallen 10%. The market now expects EPS for 2013 of 32.5p.
In the company's own words, National Grid "owns and operates the grids to which many different energy sources are connected".
Looking at year-to-date returns from FTSE 100 companies, retailers and utilities dominate the losers list. Defensive shares like National Grid often take a bashing when sentiment toward shares turns positive. The company's 3.2% decline so far this year is further evidence to me that we are in a bull market.
If the great start to 2013 has you twitching to sell some shares, then you are going to need another home for the proceeds. With a forecast yield for 2013 of 5.9% for 2013, National Grid is one of the 10 highest yielding shares in the FTSE 100.
EPS is forecast to rise 10.8% in 2013 and level-off the year after. The dividend is forecast to increase slightly for 2014.
Although Diageo has failed to join the party so far in 2013, it has been one of the FTSE 100's best performers in recent years. Despite the ravages of the financial crisis and recession, shares in this super-brewer increased more than threefold in the five years from the beginning of 2008.
In that time, EPS has increased by more than 50%. The dividend has been increased year-on-year for the last five years, at an average rate of 5.9%.
The success of Diageo's products (Guinness, Baileys, Smirnoff, etc) gives them tremendous economies of scale. The recognition that these brands have helps Diageo maintain premium pricing.
Market analysts expect Diageo to increase earnings 10.7% in 2013, followed by an 11.2% rise in 2014. The dividend is forecast to rise a similar amount this year and next.
Billionaire US investor Warren Buffett loves buying shares in companies with strong brands. Warren knows the kind of returns that can be made buying shares in companies like Unilever and Diageo. Buffett has recently been buying shares in another British firm. To find out which one, get your copy of the free Motley Fool report "The One UK Share Warren Buffett Loves". This report is 100% free and will be delivered to your inbox immediately. Just click here to start learning from this super-investor today.
> David does not own shares in any of the above companies. The Motley Fool has recommended shares in Unilever.