These are the top trending stocks in the UK right now

I take a look at the top trending stocks in the UK right now from two points of view: relative strength and the ones ISA investors are buying the most.

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What are the most popular stocks in the UK markets right now? There are a couple of ways to answer that question. First, I could look at the stocks that are trending upward in price much faster than the market as a whole. Second, I could look at what stocks most investors are snapping up for their portfolios.

Relatively strong FTSE stocks

My preferred way of searching for the top trending stocks in the UK is to screen for relative strength. Relative strength compares the percentage price change of a stock to the percentage price change of a broader market index. Higher positive values demonstrate overperformance. The top trending stocks in the UK over the last week as measured by relative strength are Essensys (44%), Card Factory (26%), RWS Holdings (22%), Induction Healthcare (21%), and Steppe Cement (16%).

NameTickerMarket CapRelative Strength (One Week)IndustryIndex
EssensysESYS£74.0m44%Software & IT ServicesFTSE Aim All-Share
Card FactoryCARD£205.5m26%Speciality RetailersFTSE All-Share
RWS HoldingsRWS£1,661.9m22%Professional & Commercial ServicesFTSE AIM All-Share
Induction HealthcareINHC£58.9m21%Software & IT ServicesFTSE Aim All-Share
Steppe CementSTCM£78.8m16%Construction MaterialsFTSE Aim All-Share
Source: Financial Times market data

All of these UK top trending stocks are small cap. All except Card Factory are listed on the FTSE Alternative Investment Market (AIM) rather than the main market. The problem with looking at short-term trends is that they tend not to persist. I would not use these top trending stocks over the last week as a buy list. Last week things looked very different.

AIM-listed biotechnology and medical research stocks dominated last week’s top trending UK stocks list and none feature on this week’s list. I take this as a reminder that taking a short-term view of the markets is to be avoided.

NameTickerMarket CapIndustryIndex
Sareum HoldingsSAR£168.5mBiotechnology & Medical ResearchFTSE Aim All-Share
Scancell HoldingsSCLP£138.6mBiotechnology & Medical ResearchFTSE Aim All-Share
AvactaAVCT£322.8mBiotechnology & Medical ResearchFTSE AIM 100
RenoldRNO£60.3mMachinery, Equipment & ComponentsFTSE Aim All-Share
4d PharmaDDDD£87.4mBiotechnology & Medical ResearchFTSE Aim All-Share
Source: Financial Times market data

However, keeping an eye on what stocks are trending does help me get a feel for what is going on in the market. If small-cap stocks are outperforming, then markets are in a risk-taking mood and are usually buoyant, at least for the moment. If one sector or industry is outperforming, I can research what broader themes might be lifting all those stocks and perhaps tumble onto something interesting that might hold in the long term.

Investors are buying these stocks

Another way to look for top trending stocks is to see which ones are popular with UK investors. Hargreaves Lansdown, an ISA provider and broker, lists the stocks its retail investors have been buying the most. This week, and indeed most weeks, they are all large-cap members of the FTSE 100 index. However, there is one that is a mid-cap member of the FTSE 250 index. All of them pay dividends.

Table 3. The five stocks retail investors are buying the most according to Hargreaves Lansdown

Company TickerMarket CapIndustryIndex
BPBP£77.7bnOil & GasFTSE 100
GlaxoSmithKlineGSK£90.1bnPharmaceuticalsFTSE 100
BarclaysBARC£24.4bnBanking ServicesFTSE 100
Witan Investment TrustWTAN£1.63bnCollective InvestmentsFTSE 250
ShellSHEL£165.7bnOil & GasFTSE 100
Source: Hargreaves Lansdown top of the stocks

Stocks and Shares ISA investors have been loading up on blue-chip income stocks this week. The core of my own ISA is in similar stocks, and I reinvest the dividends I receive. I do have smaller allocations to more speculative stocks, like those that might crop up on a top trending stock screen based on relative strength. However, I won’t buy a stock for that reason alone.

Liquidity and volatility

It’s interesting to note that the stocks that investors are buying the most are not the ones seeing the most significant increases in their prices. Large-cap stocks have millions, sometimes billions of shares in issue. Even with reasonably heavy retail demand, the price is not budged too much by buying and selling alone: that is what is meant by a liquid stock.

With smaller-cap stocks, because the number of shares in issue is typically lower, the stock is considered illiquid. This means the actions of buying and selling can move the price of the stock substantially. So, when a small-cap stock is trending, I always consider if something fundamental is driving the move or it is just a lot of buying chasing the price of an illiquid stock higher.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James J. McCombie owns shares in BP, GlaxoSmithKline, and Shell, The Motley Fool UK has recommended Barclays and GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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