The US Dow Jones index has been making record highs this year. Meanwhile, the FTSE 100 has still to surpass its 1999 high-water mark of 6,930.
Having come within 60 points of the record during May, and fallen back, the UK’s leading index is once again on the march. With the traditional Christmas rally just around the corner we could see the FTSE 100 at 7,000 before the year’s out.
Barclays (LSE: BARC) (NYSE: BCS.US), ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) and Aberdeen Asset Management (LSE: ADN) are three stocks that should rise strongly if the Footsie breaks through its previous high.
Barclays released a third-quarter update last week. Chief executive Antony Jenkins said the bank’s deleveraging and cost-saving plans are on track, and that “all of our businesses are well positioned to take advantage of improvements in the global macro environment”.
City analysts are forecasting a 20% rise in earnings during 2014 and a big uplift in the dividend. Forecasts put Barclays on a price-to-earnings (P/E) ratio of just 8.5 with a dividend yield of 4.2% at a recent share price of 258p. These are attractive fundamentals for an optimistic market.
Barclays also has one of the highest ‘betas’ among the banks, 1.5, which means the company’s shares have been typically rising by 1.5% when the Footsie rises 1%. We can expect a strong performance if the index rallies to 7,000.
The FTSE 100’s previous high at the turn of the millennium was driven by dot.com euphoria, so it would be fitting to see the shares of leading British tech company ARM Holdings soar if the index makes a new high.
ARM’s vertiginous rating — a forecast P/E of almost 50 at a share price of 976p — is like a blast from the dot.com past. But, with a beta of 1.6, the shares can still be expected to rocket higher in a buoyant market.
Aberdeen Asset Management
Aberdeen Asset Management has climbed well over 100 places in the FTSE ranking since the company’s financial-crisis low of 2008.
Fund managers such as Aberdeen, with heavy exposure to equities, are effectively a geared play on rising markets. Aberdeen’s beta of 1.9 tells you just how much the company’s shares exaggerate the movements of the FTSE 100.
Aberdeen has recently confirmed it’s in talks to buy Scottish Widows Investment Partnership, the asset management arm of Lloyds Banking. Uncertainty isn’t usually good for shares, but in this case the possible deal could give an added boost to Aberdeen’s shares if the market puts its rosiest-tinted glasses on.
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> G A Chester does not own any shares mentioned in this article.