Statistics suggest that FTSE 100 companies like GlaxoSmithKline plc (LON:GSK) and National Grid plc (LON:NG) will avoid future volatility.
Some companies see their share price swing massively on modest market moves. Others seem immune to market panics or outbreaks of irrational exuberance. Stock market analysts have a statistical measure for this: the 'beta'. For example, a share with a beta of 1.2 is one that has previously been 20% more volatile than the markets.
By trawling the market for low-beta shares, we can find investments that have previously been less of a roller-coaster than the market in general.
| Company | Beta | 2013 P/E (forecast) | 2013 yield (%, forecast) | Market cap (£m) |
|---|
| Severn Trent (LSE: SVT) | 0.17 | 16.8 | 4.3 | 3,742 |
| Randgold Resources | 0.21 | 18.4 | 0.6 | 5,353 |
| United Utilities | 0.30 | 17.7 | 4.8 | 4,848 |
| Reckitt Benckiser (LSE: RB) | 0.35 | 16.7 | 3.1 | 29,623 |
| National Grid (LSE: NG) | 0.36 | 12.6 | 6.0 | 24,867 |
| AstraZeneca | 0.37 | 7.9 | 6.0 | 38,303 |
| Centrica | 0.37 | 12.6 | 4.9 | 17,593 |
| SSE | 0.39 | 12.5 | 5.9 | 13,705 |
| WM Morrison Supermarkets (LSE: MRW) | 0.39 | 9.5 | 4.6 | 6,089 |
| GlaxoSmithKline (LSE: GSK) | 0.43 | 12.3 | 5.4 | 67,811 |
I've picked out five for further consideration.
Severn Trent
Severn Trent provides water and sewerage services to 4.2 million households and businesses in England and Wales. After the wettest year on record, water companies have plenty in stock. This will make their job far easier in 2013.
So far this year, Severn Trent shares have not joined the large rises many shares have enjoyed. In fact, the shares trade near their low for the year.
The forecast dividend rises that mean Severn Trent now looks a decent yield play. Although the price-to-earnings (P/E) ratio is high, investors expect to pay a premium for a company with such reliable earnings. Severn Trent is forecast to pay 75.8p of dividends for 2013, a record payout for the company.
National Grid
Since the beginning of 2013, the FTSE 100 has risen 4.3%. In the same period, shares in National Grid have fallen 2.8%.
There have been no material announcements from the company in that time. It is possible that the disparity in returns is simply market noise. However, I think something else could be at play.
As owner and operator of power and fuel infrastructure, National Grid is a non-discretionary supplier. It is a classic 'defensive' share: whatever is happening in the economy, its customers rarely cut back.
I think that in recent weeks, shares like National Grid have simply gone out of fashion. Investors have been rejecting solid, dependable shares like National Grid in the aim of making big gains on more speculative stocks. Good luck to sellers, but I think that National Grid shares are now very attractive.
GlaxoSmithKline
Pharmaceuticals giant Glaxo produces a range of drugs, from the family medicine cabinet variety to the HIV medicines it produces through its joint-venture with Pfizer. One of the company's biggest selling treatments is Seretide, a respiratory product that contributed £5bn to Glaxo's revenues in a single year.
Glaxo shares currently trade within 5% of their low for the year. At the same time, they are just 9% away from a five-year high. That shows how steady Glaxo shares are.
As governments tighten their belts, it is possible that global healthcare spending will coming under pressure. Perhaps for this reason, only slight earnings growth is expected from Glaxo for 2012 and 2013. The dividend is expected to rise comfortably ahead of inflation.
WM Morrison Supermarkets
If you like to buy shares when they are their cheapest ever, then take a look at Morrisons' today. With the shares at 253p, Morrisons has never traded on a higher dividend yield or a lower P/E.
Given that valuation, you would be forgiven for thinking that Morrisons was in serious trouble. Yet earnings and dividends are expected to increase for the next two years.
There are some concerns over Morrisons' current trading and its recent loss of market share. However, Morrisons still trades at a big discount to the average FTSE 100 stock -- and pays a better dividend.
If you wait for the company to announce a sustained improvement in trading, you will likely to be too late to buy the shares cheap.
Reckitt Benckiser
Reckitt Benckiser is one of those massive companies many people have never heard of. The company owns a collection of well-known household brands such as Harpic and Cillit Bang. For as long as people need clean, hygenic bathrooms and kitchens, Reckitt Benckiser will continue to make sales.
The non-discretionary nature of many Reckitt Benckiser products means that the company delivers a reliable stream of sales, profits and dividends.
In the last five years, the company has delivered compound average earnings growth of 18.1% per annum. In that time, the dividend has been increased at an average rate of 22.0% a year.
Unfortunately for Reckitt Benckiser shareholders, earnings are expected to plateau for 2012 and 2013. Dividend increases are forecast to continue at a rate approximately in-line with inflation.
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> David does not own shares in any of the companies above.
