Famously, well-known value investor and one-time Fidelity fund manager Anthony Bolton once revealed that he started his hunt for new investments by looking at the share price chart for firms that interested him.
Charts can be a useful tool for investors, and if a firm’s fundamentals and valuation appeal to me it’s a bonus if the shares are in upwards momentum already.
Referendum shock
Shares in Prudential (LSE: PRU), Aberdeen Asset Management (LSE: ADN) and Britvic (LSE: BVIC) are all moving up following a plunge immediately after the referendum about Britain’s relationship with the European Union.
Britain’s vote to leave the EU seemed to come as a shock to the stock market sending UK-facing companies’ shares lower. However, during the build-up to the vote many ‘experts’ were predicting economic Armageddon should Britain vote to leave the EU, so a recession seemed almost inevitable in such an event.
The warnings came relentlessly for months, and that situation seemed to weigh on investor confidence. I think the stock market had been in a held-back state for a long time before the final plunge in some shares following the vote. But it looks less and less likely that any deep recession is about to develop in Britain, and the UK’s eventual leaving date remains years away.
It makes sense, therefore, that cyclical shares and those reliant on the UK market are coming back. They could have much further to run than is necessary to recover ground given up in the post-referendum-vote plunge. If valuations and fundamentals appeal to you with these resurgent firms, it could be worth taking a closer look with a view to investing.
Undemanding valuations
At today’s share price of 1,393p, Prudential trades on a forward price-to-earnings (P/E) ratio around 11 for 2017, and the forward dividend yield runs at 3.3%. With Aberdeen Asset Management’s shares at 335p, the forward P/E rating is 16 or so for 2017, and the forward yield 5.9%. Meanwhile, at 658p, Britvic trades on a forward P/E ratio of almost 14 for 2017 with a forward yield around 3.7%.
City analysts following the three predict an uplift in earning for each of them during 2017, Prudential up 11%, Aberdeen 10% and Britvic 1%. None of the firms’ valuations look outrageous and there’s little sign of Brexit-induced damage to their businesses. Indeed, it seems like a case of ‘business as usual’, which could mean that referendum jitters in the stock market could end up looking like something of a buying opportunity for investors in hindsight.
When combined with the firms’ undemanding valuations and decent-looking forward prospects for their businesses, post-referendum momentum in the shares looks tempting and buying shares in these resurgent firms could be a good post-Brexit vote strategy.
