Why not then focus your attention on the stocks that are exposed to the parts of the economy that are doing well, or are at least showing signs of promise?

What about retail?

The latest surveys on the retail sector are encouraging. It seems that falling oil prices, low inflation, rising real wages and a little more confidence among consumers are all helping some of the more mid-range retail companies.

The Confederation of British Industry‘s retail sales balance fell to plus 39 from plus 61 in December. Despite the fall, it beat expectations. The result, it seems, was boosted by the “Black Friday” shopping frenzy.

In addition, Gfk‘s consumer confidence read jumped five points in January to its highest level since the middle of last year.

Before you say anything, no, it’s not supermarket sales driving these results — at least not revenue growth at the likes of Tesco or J Sainsbury. In fact, the most fashionable items for consumers seems to be clothing. Clothing sales are experiencing their biggest rise in almost two years.

The director of economics at CBI was reported in the media recently saying that there was solid footfall through the doors over the Christmas trading period, leading to further robust growth in sales in the New Year.

Debenhams

A key beneficiary of this latest boost in spending will be Debenhams (LSE: DEB), I believe.

Over the four weeks to the 10th of January, like-for-like sales at the store increased by almost 5%, and online sales jumped by more than 25%. That’s not enough for investors, though. The real question is whether it can continue, and if the store can compete on price? If the factors leading to better-then-expected Christmas trading continue into 2015 though, and management gets its margins right, we could see Debenham’s valuation increase.

As an aside, you might note that the store saw 250,000 women’s handbags fly off the shelf over Christmas. That’s heck of a lot of handbags!

Marks and Spencer

A recent update from Marks and Spencer (LSE: MKS) wasn’t too hot. The retailer said like-for-like general merchandise sales fell 5.8% in the third quarter. Sales were affected by the warmer autumn weather. However, the firm also reported record sales for food over Christmas and New Year period. The same macro-economic forces that may help Debenhams could inspire sales growth into 2015 at M&S. It was a disappointment at the time, but I’m also encouraged by the fact that M&S was let down by its online distribution problems over the Christmas period. Sans tech problems, and the company could look materially better further into 2015.

Unilever

Sales at Unilever (LSE: ULVR) (NYSE: UL.US) have had a bumper run since 2009, up more than 25%. Last year the company fell back a bit, though, with sales down by 2.7%. That was Unilever’s worst performance in around a decade. Can it recover from here? Again analysts are pointing to the likelihood of falling commodities putting more cash into the pockets of consumers. Credit Suisse said recently that lower commodity prices will give a one-off boost to consumer goods firms’ profit margins, and that includes Unilever.

Investors are just hoping that the companies that benefit from these conditions can capitalise on their gains.

There you have it. Three retail companies that have growth potential in 2015.

The post Why Unilever plc, Debenhams Plc & Marks and Spencer Group Plc Could Be 2015’s Top Picks appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

One thing this Fool knows for sure is that the market for energy worldwide will eventually settle down, and prices for both crude and shale will find their respective equilibriums.

What market events like these can show investors though is those companies that are fundamentally better than others.

I’ve lost interest in BP

I have mentioned in previous notes that I struggle with BP (LSE: BP) (NYSE: BP.US)’s ongoing court/settlement problems. BP made a huge mistake many years ago and the company and its investors have been paying the price ever since. It doesn’t stop there, though.

The latest ‘trauma’ to hit BP is the falling price of oil. We know that the oil producer has a target of selling $10 billion of assets by the end of this year, but the reasons the company gave for its latest move towards that goal have surprised me a little.

As part of its broad re-structuring move, BP has scaled back its role in two oilfields in the Gulf of Mexico. It’s selling half its equity interests in the Gila and Tiber fields. Here are the reasons it gave for its divestment. It needs to support exploration elsewhere, manage its capital and also manage its production. In other words, BP needs to sell these assets.

I’m actually tempted to say that without this planned restructure, BP’s balance sheet and cost structure look decidedly questionable. What do I mean by that? Well, simply that BP had overstretched and was/is losing money. Even a quick look at the stock’s price chart will show the company has been losing value steadily since July last year. A re-structure is necessary. I am, however, a little surprised by just how necessary it seems to be.

Little hope in the short term

One shock is enough, but two major shocks is an entirely different story. The two shocks I’m speaking about of course are the Deepwater Horizon oil spill and the steep fall in the price of oil. The company has been left so bruised that there’s growing speculation BP is going to be stepping back from its leadership role in the industry. The Financial Times recently reported that “BP will not take a lead role as operator in what are some of the most important discoveries in the Gulf of Mexico in recent years”.

Is Shell any better?

I suppose the next question then is, ‘is Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) any better’? It’s suffering from the same ailments that BP is suffering from after all. That’s true, but Shell has one advantage — it’s a significant refiner of oil as well.

The company’s latest results show its adjusted earnings in 2014 were $22.6 billion, up 16% from the previous year. Despite looking good on paper the market was hoping for more, so the stock got a little pummelled on Thursday. Still, there’s no sign the company is feeling the heat. It’s already put forward a case for continued investment in the firm.

Reasons include that the refining business is offsetting weakness in the oil producing business; that capital spending will likely come down but there will be no “slashing and burning” in 2015; and that Shell predicts the oil price will recover to over $70 per barrel. Importantly, the oil producer has indicated that it’s only interested in taking a “measured approach” to its investments. Some analysts have responded well to that.

It’s not an easy time to be an investor in the energy sector, but if the industry turns around any time soon, I think I’d prefer to be riding on Shell’s back.

The post I’m Done With BP plc, But Royal Dutch Shell Plc Is Another Story Entirely appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Policy makers have been trying to pull the economy away from one that is consumer driven, to one that is more balanced — incorporating growth from the manufacturing, construction and export sectors.

How’s that going for you?

Unfortunately, especially for the Tories, it’s simply not happening as well as was hoped for. In fact, it’s barely happening at all. Earlier, this week the Office for National Statistics produced data showing that the economy grew by 0.5% in the final three months of 2014. That’s actually down from the 0.7% growth recorded in the third quarter.

The problem is clear, the solution is not

It’s all very well to lower interest rates and ‘print money’ to stimulate the economy, but that stimulus has to penetrate through several layers of the economy. At the moment — as is the case in other parts of the world — it seems to be doing the world of good for the financial services sector, but not much else.

The construction sector, for instance, contracted by 1.8%. Travis Perkins (LSE: TPK) is a building products company and is obviously exposed to growth in this sector. The company’s already on a reasonably tight profit margin of 4.5%. It also has a P/E ratio of 17 and earnings per share growth of less than 1%. If the construction sector contracts further, it’s hardly going to be good news for investors in this stock.

Then you have manufacturing. It grew by just 0.1% last quarter. That was its worst performance since the start of 2013. Manufacturing companies around the world have been hit hard in the wake of the Great Recession, but Britain’s manufacturers have been hurt particularly badly. There are several reasons for that but two reasons include the fall of the Eurozone economy (Britain’s major trading partner), and the strength of the pound. Sanctions imposed on Russia have not helped either.

Rolls-Royce Holding (LSE: RR) (NASDAQOTH: RYCEY.US) has been a casualty of this. After putting on a brave face in 2014, it recently fronted the public to say, “Group underlying revenue will be in the range of plus or minus 3% and profit in the range of plus or minus 3% compared with our expected outcome for 2014”. It’s hard therefore to see conditions improving significantly for Rolls-Royce in the short-to-medium term.

Uncertainty

The manufacturing, construction and export sectors also benefit greatly from certainty. Analysts have repeatedly said the upcoming general election is one of the great sore points for the economy (and the market) because it represents so much uncertainty.

So where is the money?

As I mentioned earlier, one sector that seems to be doing okay is the financial services sector. That includes the banks. In particular, this Fool sees very little room for a rate rise in the foreseeable future, which is good news for Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) — which controls much of Britain’s housing market. I won’t make any comments as to whether the property market actually needs further stimulus, but I’m sure Lloyds’ executives won’t be complaining about it.

The British consumer is still using the British financial services system, and the system is making money, so investors will benefit from that. Assuming the economy doesn’t go backwards from here, it’s also reasonable to assume that Lloyds’ profit margin will benefit when Mark Carney finally decides to raise interest rates.

The post Why The Outlooks For Lloyds Banking Group PLC, Travis Perkins plc & Rolls-Royce Holding PLC Have Changed appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The latest data shows that the economy expanded by 0.5% in the three months to the end of December, following growth of 0.7% in the third quarter, according to the Office for National Statistics.

It’s the usual story: the services sector is holding up quite well but there’s been a sharp fall in construction output. Industrial production also shrank by 0.1%, while the manufacturing sector was basically flat. Britain’s economic recovery remains patchy.

That may all be quite manageable except for the fact that real wages remain a sticking point for consumers. So “the risks”, as they say, to the economy are on the downside, in this Fool’s humble opinion.

Taking matters into your own hands

Top FTSE 100 companies know things could go pear-shaped at the drop of a hat, which is why many of them are starting to resort to somewhat under-handed tactics to stay afloat… too many cliches??

Take Diageo (LSE: DGE) (NYSE: DEO.US), for example. According to The Telegraph, it has made the unusual move of extending payments to suppliers out to 90 days. The reason for the move is obvious — healing a margin squeeze. It’s an unfortunate move, though. Why? Because its margin squeeze ain’t that bad, and because it’s taking advantage of its market position.

Diageo insists that it needs to improve its cash flow and drive out costs. So just how injured is the brewer’s balance sheet? Not that much as it turns out.

Diageo has a debt to equity ratio of 1.35. There’s more evidence that it’s got its finances under control with an interest cover of 5.74. It’s no surprise then to see that the company has a healthy profit margin of 12%.

So what’s really going on? Well, as part of the information made available to the press, Diageo was reported as saying that it has “significant investment projects under way across our operations in Scotland and Ireland and like any business, to support our investments we need to improve our cash flow and drive out costs”.

In other words, Diageo is using its suppliers to help cushion the potential cash-flow headwinds that could come from its increased investments. Not cool!

Is this the catalyst to switch to SABMiller?

So I guess the question then is whether you should consider switching to SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US). Both Diageo and SABMiller have very similar fundamentals. To cover some of the basics, SABMiller has a price-to-earnings multiple of 25 times, and a dividend yield of 1.94%. Diageo’s price-to-earnings multiple is around 22 times, with a dividend yield of 2.63%. It’s a tough call.

One way Diageo has chosen to ‘grease the wheels’ is to make life a little more difficult for its suppliers. SABMiller, on the other hand, has chosen to reach out for synergies (joining up with Coca-Cola in Africa).

Based purely on the more sustainable approach, it seems to this Fool that the wiser investment decision is SABMiller, but it too has its challenges. In its latest accounts, SABMiller said net producer revenue rose 4% in the fourth quarter. That’s on par with last year. The company said, however, that volumes in China fell 9% during the quarter. Sales in North America also fell 1% as many Americans upgraded to more premium brews.

Both companies have their challenges, especially with regard to achieving growth, but I think it’s worth pointing out the different strategies these companies have employed to gain an advantage. Which stock do you think now has the most potential?

The post Diageo plc May Have Just Dug Itself A Huge Hole, But Will SABMiller plc Benefit? appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What is Sports Direct playing at?

Have you ever been into a Sports Direct (LSE: SPD) store? It’s nothing to write home about. My late father used to say it’s the stockbrokers that need to have the fancy offices, everyone else is just trying to keep overheads down.

Mike Ashley, who still controls Sports Direct, has always just been keen to get customers through the doors. He does that with a cheeky little strategy of selling inexpensive clothing items next to expensive ones. For example, he sells the brands he owns at cut price, right beside adidas and Nike’s products. It’s a premium-discount store… or something like that??

Whichever way you cut it, adidas doesn’t appear too keen on the idea, nor does it like the ‘cheap’ look of Mr Ashley’s stores. It’s not just the layout of the stores that’s done on the cheap, though. Last year it was revealed as many as 20,000 of the company’s part-time employees were on zero-hours contracts. My point here is that the company’s trying to be light on its feet.

2013 was a particularly cheerful year for the company as its shares rose 86% and sales lifted more than 20%. The retailer’s share price took a backward step last year, but now looks to be back in favour again, which is why Mike Ashley’s latest move has raised so many eyebrows.

Mr Ashley sold more than £100 million worth of Sports Direct shares last week through a placing handled by Goldman Sachs. That took his stake in the sportswear retailer from about 58% to just over 55%. As little as two years ago, he held 68% of the equity.

Some City analysts are speculating it’s related to the derivatives contracts that the company bought into last year involving Debenhams shares. Mike Ashley now has two derivatives deals that afford Sports Direct the right to take a 13% stake in Debenhams. What else can the entrepreneur do with the money?

Others have guessed that Mr Ashley is seeking to get more involved with Rangers, the Scottish football club.

This Fool believes it boils down to how much faith you have in Mike Ashley. Plenty of retail managers are happy to accept low growth and stable dividends, but Sports Direct doesn’t offer that (especially dividends). Instead, it appears Mike Ashley is playing with what he has for now in an attempt to build an empire. Will Sports Direct benefit from that? Of course. Can Mike Ashley’s world grow from here? That’s anyone’s guess.

A Merry Christmas for Conviviality Retail

Over the Christmas trading period the likes of Tesco and J Sainsbury were mourning the loss of customers to the discount stores Aldi and Lidl. There was, however, another company that was making headway… Conviviality Retail (LSE: CVR).

According to The Guardian, a smartphone app and deep discounts on wine and beer helped increase sales for the retailer. In the two weeks to the 4th of January, sales at franchise stores rose 1.2% and total sales rose 2.6%. Some of the credit has gone to Bargain Booze’s app. It’s been downloaded 4,000 times. It could be that.

This Fool doesn’t think it’s rocket science. Conviviality’s strategy is simply a step ahead of Tesco’s. It’s already closed around 100 stores over the past 18 months and it seems that has helped to bring down costs. Combine that with a focus on convenience and heavy discounting and you have a nice platform to boost sales. Conviviality is trying to achieve further growth this year by appealing more to women and by boosting its online capabilities — again making life easier for customers.

British consumers have said quite clearly they want convenience and value. Some retailers are now successfully responding to that.

The post Alarm Bells For Sports Direct International Plc… But Christmas Bells For Conviviality Retail PLC appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International and owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

For those with quite a bit of cash, and time to look at the market, trading can prove quite lucrative. If you’re in for the long haul, on the other hand, and you would prefer to throw your money behind solid companies that’ll provide you with passive income for later in life, then a dividend portfolio is what you want.

Recently, though, the market has made that decision a little more tricky. For starters, unless you’re trading full-time, it’s very hard to know where the next growth stock is going to come from; and secondly, companies have thrown a spanner in the works by boosting their dividends unexpectedly.

Vodafone to blame

The returns on the FTSE 100 over the past 12 months have been anything but inspiring. The previous year was a different story when the market produced gains of over 13%. The year 2014 though was basically flat. FTSE 100 companies have struggled for profit growth, not helped at all by a sluggish global economy.

Rather than chasing growth, some companies have downsized (sold assets) and used the cash for dividend payouts. In fact, according to The Telegraph, British companies paid out a record £97.4 billion in dividends to investors last year. Guess which company was front and centre? Vodafone (LSE: VOD) (NASDAQ: VOD.US). The telecoms player was the single biggest dividend payer, returning £20 billion to shareholders. Much of that was due to special payments of £15.9 billion.

Is Vodafone onto something here? Its main rival, BT Group, produced a dividend yield of only 2.7%. Over the same period, Vodafone yielded 4.6%.

Strategically, BT trumped Vodafone in 2014 by moving forward with its bundled offerings. It became obvious that Vodafone was playing catch-up. Perhaps that means that BT will offer better earnings growth than Vodafone in coming years? In the meantime, it seems Vodafone has claimed victory on the dividend front — a front that companies may now need to take more seriously as investors look for returns.

The pound adding to problems

Another issue many FTSE 100 companies are taking more seriously is the strength of the pound. Last year saw the pound rise 10% against the euro. In the nine months to the end of September, British American Tobacco (LSE: BATS) (NYSE: BTI.US)’s revenue fell 9.6%.

The pound is currently at a seven-year high against the euro so for those earning money in Europe, it’s going to hurt (notwithstanding various hedging policies in place). British American Tobacco is just one company to be affected. Compass Group, Rolls-Royce Holding and Diageo are also on the currency hit list.

With the European Central Bank’s recent decision to engage in quantitative easing, this currency problem faced by British multinationals is unlikely to go away any time soon. In addition, analysts are worried that slowing global demand is also hurting British companies stretched out across the world. British American Tobacco has again been singled out because cigarettes are now been seen as a ‘luxury’ in poorer countries.

Is it time to favour domestically focused stocks?

The problem with favouring British-centric companies over multi-nationals with exposure to fluctuations in the pound is that the British economy isn’t going gang-busters either! Yes, the services sector is growing, but the rest of the economy already looks a bit tired. To this Fool, the answer seems to be a compromise. It doesn’t make sense to chase companies over-exposed to discretionary spending in Britain, nor to companies that are leveraged towards growth in the Eurozone. It does, however, make sense — from a short-term growth perspective — to chase companies with operations in the United States. You’ll find, too, that the pound is indeed on the back foot in that particular currency pair.

The post Why You Need To Take Another Look At Vodafone Group plc And British American Tobacco plc appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Two companies I am going to look at today are Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) and BHP Billiton (LSE: BLT) (NYSE: BBL.US). First though, here’s the latest on China — in as brief a way as I can manage!

Slowing Chinese economy

Last week China announced its lowest growth rate in 24 years: the economy grew 7.4% in 2014. That’s down from 7.7% in 2013.

There’s more to come, too. Just look at the downside risks. China’s property market has remained largely unresponsive to policy support. Indeed, lending data from the banking system shows signs of chronic weakness there. At the same time, there are also worries regarding local government debt — which, of course, is intertwined in the property market.

Policymakers also are concerned about the steep fall in energy prices and industrial overcapacity.

The number crunchers at UBS aren’t terribly impressed by any of this and see Chinese GDP growth falling as low at 6.8% in 2015.

Ultimately, China wants to transition its economy into being a consumer-led economic powerhouse — but that will take time.

Standard Chartered losing its grip in China

Here’s the long and the short of it. Standard Chartered, like many banks, lends money to companies. Unfortunately, many of the companies it’s recently lent money to have been overly exposed to falling commodities prices (particularly oil and copper). According to the South China Morning Post, analysts are naturally getting quite concerned about the quality of the lender’s loan book — especially with regard to those companies using commodities to back their debt loads.

So just how bad is it? Let’s break it down. Credit Suisse says Standard Chartered has about $32.6 billion directly tied up with commodity traders. It’s also got another $28 billion or so with a whole bunch of energy, agriculture, metals and mining firms. To put all that in perspective, the bank’s total assets stand at around $690 billion. Sound okay? Credit Suisse doesn’t think so: the investment firm says the bank’s total global commodities exposure may require additional provisioning.

The bottom line? City analysts expect Standard Chartered’s full-year earnings per share to fall 17.3% from last year. Ouch.

BHP Billiton digging its own hole

BHP Billiton is also starting to sniff the foul stench of falling commodities prices. Okay, that’s a bit dramatic, though let’s not forget iron ore prices fell over 40% last year, and most analysts don’t see that trend reversing in 2015. BHP is also exposed to the falls in the prices of oil and copper.

So just how big a bite is this commodities bear market going to take out of BHP? The company made $5.82 in earnings per share in fiscal 2014. Since then earnings per share have fallen to $4.80. According to analysts, earnings-per-share are expected to fall 27% in fiscal 2015 to $3.89 per share. Some indicators already have it lower than that.

Standard Chartered and BHP Billiton still long-term “income plays”

Has that depressed you enough yet? There you have two stocks that looked positively rosy 5 years ago, but now look a little saggy. Believe it or not I’m not actually trying to depress you, in fact I may even have some light at the end of the tunnel for you.

You see the thing is that BHP Billiton and Standard Chartered have both lost value over the past 6 months and, as such, their valuations have fallen. Their lower price-to-earnings multiples therefore look about right now, but… they both have dividend yields of between 5% and 6%. So while they may have lost their ‘sex appeal’ in the short-term, in the long-term, they still look relatively attractive as income or dividend plays. Then again, most half-decent companies look good over the longer run.

The post Why 2015 Could Prove Tough For BHP Billiton plc And Standard Chartered PLC appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It’s a strange comparison, but that is how I view the FTSE 100 in relation to quantitative easing — QE. The market is doing OK as is, but take away the stimulus — both from the Bank of England and now the European Central Bank — and I fear we’d be left with something of an uncomfortable silence in the market.

With or without you

Do you remember the “taper tantrums” of 2013? That was the market’s way of saying to the-then chairman of the US Federal Reserve, Ben Bernanke, “don’t take away our stimulus!”. The market was hooked. As the US economy has improved, the stimulus has been wound back, but the markets have continued to creep higher.

The difference of course is that the economy is in better shape. So, relatively speaking, the US economy is receiving an enormous amount of stimulus (‘zero’ benchmark rate) relative to what would otherwise be warranted under such conditions. It means Wall Street can still walk around with its chest puffed out.

If interest rates were to start rising in the US, you would likely see a swift and dramatic exit from equities and into the bond market or cash.

Either way the market is ‘stuffed’. It can’t maintain its current altitude because extreme policy can’t last forever, and it won’t do well on its own, without stimulus.

For better or worse

The Europeans have seen how much fun Wall Street has been having over the past couple of years and now they want in on the action too.

Yesterday the ECB officially announced that it will buy €60bn worth of assets — public and private sector securities — per month. That’s more than markets were hoping for. The bank promised to print money until at least September 2016.

What’s the purpose? To stimulate the economy and achieve that wonderful little thing called inflation — it increases asset prices and helps dissolve debt. Straight from the lips of ECB president, Mario Draghi, the programme is designed to, “increase the lending capacity of banks“.

So far it’s had the effect of producing a mild rally in Europe’s major share markets and seen the euro drop to an 11-year low against the dollar.

That’s all for the better, right? Maybe not.

The sugar high

There’s nothing wrong with a bit of chocolate. It tastes great. You can’t, however, run a marathon on the stuff. The latest stimulus from the ECB, and the on-going £200bn in stimulus from Threadneedle Street, both provide the sugar for the market.

The marathon for the Eurozone is achieving fiscal balance for periphery states, competitiveness, productivity, inflation and economic growth. The marathon for Britain is achieving fiscal balance, higher real wages, longer working hours, and growth in the construction, manufacturing and export sectors.

So you see, when you put it like that, it’s hard to understand why the market would keep rallying under normal circumstances (ie, without any stimulus). Yes, the whole point of QE is to achieve economic growth, but we know from the experience in both Japan and the US that it is by no means a straight-forward process. Frankly, I think the market would fall, potentially quite dramatically, without QE.

Need more convincing?

Just look at the metrics: give or take a few points, the FTSE 100 yields 3.5%. The 10-year gilt, on the other hand, yields just 1.5%. That’s a direct result of ‘unnatural’ central bank asset purchases. Yesterday’s move simply deterred more investors from looking at the debt market, but that doesn’t mean the share market magically looked any better based on fundamentals.

Back in October, the stock market had a P/E of around 12.5. Since then the market has rallied. Today it has a P/E of 15.6. The average P/E for the market is around 14. Given the state of the economy, and the recent rise in the ‘attractiveness’ of the FTSE 100 as a direct result of Euro QE, it’s this Fool’s view that the market could be out of its depth.

The post Why The FTSE 100 Would Be In Trouble Without QE appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

When a particular sector is hit by a government decision, or a merger or acquisition, this Fool believes it’s time to re-assess your portfolio.

It’s a big deal

It’s a big deal in anyone’s language: Aviva and Friends Life Group Ltd look set to come together in a transaction worth £5.6 billion. The takeover will create the UK’s largest insurance, savings and funds management firm.

It’s also a very necessary deal. Many companies in the financial services sector were hit by the pensions annuity announcement in last year’s Budget. Annuity sales at Standard Life, for example have halved in the period. Fortunately for Standard Life the company has recorded growth in its much larger funds management business.

It’s now or never

It’s become clear, however, that now is the time for Aviva to stretch its wings. The company has been looking for an acquisition to bolster its balance sheet and the pensions reform has weakened the market sufficiently to enable that to happen.

Now that a few key stakeholders have thrown their support behind the tie-up, momentum is starting to build. Richard Buxton, from Old Mutual (Friends Life’s eighth-largest shareholder), says it will strengthen both Aviva and Friends Life. In addition, Alastair Gunn, of Jupiter Asset Management, says he is also planning to give his formal approval. He has incidentally been increasing his investment exposure since the takeover was announced. Mr Gunn is particularly excited by the potential of the combined management team.

Not everyone’s convinced about this deal though. Some City analysts have already voiced their concern that the entire transaction is no more than a cash grab for Aviva.

Immediate impact of the merger

So, what does it look like on paper? Well following the purchase of Friends Life, Aviva has promised to cut around 1,500 jobs by the end of 2017. Why so many? Again, Aviva is looking for cost savings. The insurer has said it plans to generate as much as £225m in annual cost savings within that timeframe.

The UK’s insurance companies aren’t alone in feeling the squeeze. Companies in the supermarkets space have had to downsize and streamline in order to find new growth roots. Aviva, though, has really been busy, spending the past two to three years getting rid of various businesses. Most notable of these, of course, was its annuity provider, Aviva US. It’s a problem faced by quite a few companies in the FTSE 100.

Side-by-side

Standard Life and Aviva both struggle with their profit margins. That’s actually been a familiar story in the financial services sector more generally. In fact, if you’re after profits, Barclays and Lloyds Banking Group have looked promising in recent times. If you’re staying with the money managers and insurers it’s worth looking carefully at why you might keep Aviva, as opposed to Standard Life.

For this Fool, the choice between the two boils down to the reason why Aviva is so keen on a transaction with Friends Life — that is that it will pretty much solve the company’s balance sheet problems and should boost the company’s ability to pay a steady dividend.

As it stands Standard Life has a dividend yield of 4%, compared to Aviva’s 3%. Standard Life is sitting on a price-to-earnings ratio of 15, while Aviva has a P/E (by one measurement, anyway) of 14. Both companies look quite similar when placed side-by-side, but when you take the merger into account, Aviva looks as if it could have quite a bit more potential, both from a growth point of view, and with regard to its dividend.

The post Is It Time To Dump Standard Life Plc And Buy Aviva plc? appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

There was, however, significant movement on the odd occasion. Investors can get in on this action. Timing the market can be difficult, but this year is likely to present more opportunities to take advantage of dips and peaks in the FTSE 100.

On the way down

Last week the World Bank once again downgraded its expectations for global output in 2015, saying the global economy would grow 3% in 2015 (it’s a nice round number). That’s at the extreme macro level. Burrow all the way down to the micro level and you’ll find that wages in Britain have only just started to match inflation. It’s a wonder why anyone’s spending at all really!

That’s why we’re seeing so many challenges facing FTSE 100 sectors like the supermarkets and the banks. Britons are still reluctant to both borrow and spend. There’s little sign of that changing this year, unless the growth we are seeing in the services sector translates across to the manufacturing and export sectors. Otherwise, GDP growth — and market growth — is likely to be sluggish.

The sectors I believe most at risk of weighing on the index are oil & gas, food & beverage, and the banks.

On the way up

Midway through last week the European Court of Justice paved the way for the European Central Bank (ECB) to ‘print money’. That is, to buy government bonds from Euro sovereign countries in order to increase the supply of money and stimulate aggregate demand. It all dates back to Mario Draghi’s “we’ll do whatever it takes” speech in 2012. The ECB will make a further announcement on a possible program of quantitative easing (QE) midway through this week.

Over on Wall Street — well they simply haven’t been able to get enough of QE. It, together with “crisis-level” interest rates, has been the drug in the veins of Wall Street high-flyers for many years now. If both Threadneedle Street and the ECB end up concurrently running QE programmes, equity markets right across Europe and Britain should feel the benefits of that, just like we’ve seen on Wall Street.

Bumps in the middle

So while the market is climbing up the mountain, and tumbling back down again, there will be moments of ecstacy and agony. This Fools believes that merger and acquisition activity will be part of that narrative. Merger activity — in my view — is most likely to stem from the banking and insurance sectors, as well as the energy and gas sectors — most notable is the potential tie-up between BP and Royal Dutch Shell.

Recently, large movements in commodities prices, earnings announcements, and speculation about what the ECB may be doing with its monetary policy, have all caused decent movements in the market. I expect that will continue.

Are we there yet?

A lot of people are wondering when the equity market is going to go back to the ‘good old days’ of just steadily rising and then suddenly falling. For now at least I think those days are gone. Instead, many market watchers — such as business and finance commentator John Mauldin — argue that markets will swing back and forth in between going nowhere (aka rising and falling by less than 0.5%).

The order of the day will be volatility. Diversifying your portfolio with a series of blue-chip companies may not cut the mustard any more. You really need to do your homework now.

Over the past 5 years the FTSE has done very well. Over the past 12 months it hasn’t performed particularly well at all. It does, however, remain on a price to earnings ratio (P/E) of around 15, and motors along with a dividend yield of 3.5%. In other words it’s not a bad investment, but you could do a whole lot better by taking an active interest in the market and chasing some of the more interesting stocks.

The post There Are Still Big Gains To Be Made From A Flat FTSE 100 appeared first on The Motley Fool UK.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.