Fancy a quick recap on the first half of the year? Well, as you might know, it has not been a great ride, but it could have been much worse in this low-yield environment.
Sectors
Banks are shaky but their valuations are rising, and if recent trends are anything to go by, their stocks may surprise investors in the second half of the year. If I had to single out one name, that would be HSBC.
Elsewhere, miners and oil producers might have not bottomed out yet, trends in the first half of the year show, but they look cheap indeed. Anglo American remains one of the cheapest stocks in the sector, while BP is worth at least one pound more than its current valuation, in my view.
Food retailers are still troubled, while the shares of big consumers and pharmaceuticals companies look a tad pricey, but it would make sense to bet on certain names. For different reasons, Tesco, Unilever and Shire stand out as long-term value plays.
The Spotlight Is On The Banks
HSBC (-1.6% year to date) is better than it looks, and most of the bad news that has emerged so far this year is priced into its stock, although management needs to get across its message more clearly.
Standard Chartered (+11%) is bouncing back, and remains a buy for me at this level — under new management, it has made progress in recent months. I am not convinced about Barclays (+13%) and Lloyds (+14.5%), but Royal Bank Of Scotland (-7% year to date) could surprise on the upside — at least if you pay attention to its chief executive’s latest remarks, which point to cast returns to shareholders over time.
Resources/Food Retailers/Pharma & Consumers
BP and Shell have only one way to go for their current levels — and that is up, in my view.
I prefer these two names to most miners — Rio Tinto, BHP Billiton, Glencore, Vedanta and so forth — as microeconomic conditions point to a much higher price for Brent, which I think is likely to hit $80 by the end of 2015, but do not provide any encouraging signs for the mining sector.
Elsewhere, Tesco will likely dominate the headlines for a very long time: it’s not as sound as it once was, of course, but there remains a huge asset base that could be exploited by management, favouring value investors.
Since January, Morrisons and Sainsbury’s have shown that their fortunes depend on positive updates from the market leader, so I’d hold the trigger a bit longer before investing in either stock.
Their fundamentals are not great, but the first half of the year has shown that you may not be in a safe pair of hands with traditionally defensive names, such as AstraZeneca (-7%, and more downside is likely), and Smith & Nephew (-5%, ditto) and a few others, which I flagged as risky investments all over the way.
In this context, GlaxoSmithKline is flat for the year but looks cheap enough, while Shire (+18% year to date) remains my top pick. Finally, a brief mention for homebuilders such as Persimmon, Taylor Wimpey, Barratt and Berkeley: they have rallied a lot, and it may be safe to take some profit, although their fundamentals are solid and their payouts are attractive.
