Stocks in demand after Brexit

Having seen the FTSE 100 hit its highest level since early August, it is clear investors are taking the opportunity to buy into many of the largest listed companies in London.

Traders walking past the London Stock Exchange
Source: Bloomberg

Since 24 June, a number of sectors have exhibited strong performances, with some big names hitting new 52-week highs. Those shares reaching this milestone have tended to be companies with strong overseas businesses, which may see a beneficial impact in the months to come from the fall in sterling. It is not surprising that many also have good dividend yields, providing a regular income as well as potential capital growth.

A current list is below, with those names making new highs over the past two days included. While these have registered good gains since the Brexit referendum, current bullish momentum across stock markets may mean these names remain in demand:

Name P/E ratio Dividend yield Change since 24/6
ARM Holdings 48.8 0.7% 9.4%
Sage Group 40.2 1.9% 7.7%
BAE Systems 18.6 3.8% 12.7%
Experian 23.47 2.1% 9.8%
Bunzl 33.1 1.6% 13.8%
Smith & Nephew 37.01 1.8% 10.8%
BP N/A 6.8% 15.6%
Hikma Pharmaceuticals 26.26 0.9% 13%

 

The great trader Jesse Livermore always suggested that, in a bull market (which the FTSE 100 is now back in after its remarkable bounce) traders should seek out the strongest sectors, and then pick the strongest performer in those areas.

Looking at the FTSE 100, the energy (+13.76%), healthcare (+13.46%) and materials (13.3%) sectors have led the way since 24 June. If we picked out the top two performers from these then BP, Shell, Shire, Hikma, Fresnillo and Randgold Resources would make the cut. Some investors might not want to weight themselves so heavily to precious metals, so alternatives to the latter would be Glencore and Rio Tinto.

Alternatively, an investor could broaden out the list away from oil and commodities and go for the solid utilities sector (11.4%) and consumer staples (+9.6%). The top two from each of these would be National Grid and Severn Trent, and then Diageo and Coca-Cola HBC (Unilever, British American Tobacco, Reckitt Benckiser and Imperial Brands are also excellent performers from the consumer staples sector).

At present, such a momentum strategy would also have the benefits of including a large number of solid dividend payers. Often a momentum strategy (where investors pick the best performers in share price terms) includes a number of high-growth firms, which are more volatile. Now the momentum approach provides an income as well as the potential for capital growth. 

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