15 Shares Expected To Rise Fastest In A Recovery

Published in Investing on 13 August 2012

Statistics suggest these 15 shares would rise most if the market's rise continues.

Don't be distracted by the economic doom and gloom in the media. Shares have been good to investors recently. In the last 12 months, the FTSE 100 (UKX) is up 11.4%. The last three months have contributed 4.9% of this rise.

If you are expecting shares to continue their rise, then you might like to research stocks with high betas. A share's beta is a measure of how its share price has moved relative to the market.

A share with a beta of 2.5 is one that, on average, has risen 2.5% for every 1% rise in the market and fallen 2.5% for every 1% decline.

Investors can make big profits holding high-beta shares in a bull market. Conversely, for investors with a portfolio of high-beta shares, losses will likely be high if the market crashes.

I trawled the market to find the 15 large-cap shares with the highest beta measurement. Remember, a share's beta can change. While in the past these shares have exaggerated the market's movements, that behaviour might not continue in the future.

CompanyBetaMarket cap (£m)Yield %Price (p)
Gulf Keystone Petroleum (LSE: GKP)3.81,8860.0215
African Minerals (LSE: AMI)2.91,0630.0322
Ferrexpo (LSE: FXPO)2.91,1532.2196
Kazakhmys (LSE: KAZ)2.73,9042.4743
Cookson (LSE: CKSN)2.61,6633.7597
Vedanta Resources (LSE: VED)2.52,6733.6980
Taylor Wimpey (LSE: TW)2.51,6021.250
International Personal Finance (LSE: IPF)2.47622.5296
Laird (LSE: LRD)2.45814.0218
Royal Bank of Scotland (LSE: RBS)2.413,1950.0226
Travis Perkins (LSE: TPK)2.32,6072.01070
Barclays (LSE: BARC)2.322,4663.3184
Barratt Developments (LSE: BDEV)2.21,3620.0141
Paragon Group (LSE: PAG)2.25432.3180
Inchcape (LSE: INCH)2.21,7783.0385

Four shares struck me as particularly interesting.

1) Barclays

The LIBOR scandal has seen Barclays' reputation and share price take a real kicking. Chief executive Bob Diamond was forced to resign and chairman Marcus Agius will soon be following him out of the door.

The apparent crisis of management at Barclays may be attractive to contrarian investors. Furthermore, buyers appear to have the fundamentals on their side. At today's prices, Barclays looks cheap.

At the halfway stage, Barclays reported earnings per share of 21.8p and an interim dividend of 2.0p. Analyst consensus forecasts 32.3p in earnings per share for the full year and a dividend of 6.5p. This puts Barclays on a bargain forward price-to-earnings (P/E) ratio of 5.7, with an expected yield of a respectable 3.6%. Further progress in both earnings and dividends are expected for 2013.

In my book, this makes Barclays a recovery play.

If the profitability of the bank does recover at the rate forecast, do you think the shares will still trade for less than two pounds?

2) Barratt Developments

Shares in housebuilders will always be buffetted by investors' economic expectations.

Currently, the average price paid for a home in the UK is £161,000. This is an increase of just 0.9% on the figure one year ago. Sluggish house price progression is bad for housebuilders, as people delay purchases: either to continue saving or in the expectation of forthcoming price falls.

Every housebuilder's business plan is essentially the same: buy land, build a house on it and sell. The difference between the land and build costs versus the price of the house is where builders make their money. This means that small changes in the price of land and houses can have a massive effect on the profitability of companies like Barratt's.

Shares in builders are therefore a geared play on house prices. With growing speculation on the future of the economy, we should not be surprised that some shares of housebuilders are demonstrating high betas.

A recent trading statement from Barratt revealed an increase in margin on sales to 8.8%, up from 6.6% last year.

3) Vedanta Resources

As measured by its P/E ratio, Vedanta Resources is one of the cheapest blue-chip shares on the market today. The global resources group is today priced at just 5.6 times the consensus profit forecast for 2013.

That's the sort of rating that the market normally reserves for companies whose earnings are falling -- fast. Vedanta, however, is forecast to increase earnings again in 2014. The company also pays a dividend. For 2012, Vedanta paid out $0.56 to shareholders. This equates to a yield of 3.7%. That's a slight discount to the average FTSE 100 stock but still well ahead of cash.

Shares in the resources sector have all endured a tough time recently. One of the biggest concerns for investors is the likely direction of the Chinese economy. China is a huge consumer of metals and energy. A material setback in Chinese growth could hit suppliers hard.

4) Gulf Keystone Petroleum

Shares in Gulf Keystone Petroleum (GKP) have soared in recent years. In August 2009, the company reported a major discovery with its Shaikan-1 well in Kurdistan. Last week, GKP formally declared Shaikan to be a commercial discovery, another step toward development of the field.

Like most oil exploration and production shares, Gulf Keystone is a geared play on the price of oil. Add to this the tantalising possibility of further significant finds and you get an extremely volatile high-beta share.

Private investors are frequently attracted to this kind of company. Shareholders can make money from the short-term volatility of GKP shares or the less immediate exploration activity. Add in the high market capitalisation and small bid:offer spread, and Gulf Keystone is an inexpensive way of trading shares in an oil explorer.

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> David owns shares in Barclays and Royal Bank of Scotland. He does not own shares in any of the other companies mentioned.

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Comments

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ScottishPound 13 Aug 2012 , 1:51pm

High Beta doesn't mean they go up, it means they go up an down, so they might give short term gains for traders who buy and sell at the right times and mediocre returns for longer term investors or trders who buy & sell at the wrong times.

mcturra2000 13 Aug 2012 , 2:38pm

If you are expecting shares to continue their rise,

Ah, but there's the rub, isn't it? IF. Shares have risen, and volatility is at a low point. So we could be at a high point, just in time for the risky shares to divebomb.

To be honest, this kind of article is a bit of a copout. Yeah, IF, shares continue to climb. And IF shares in Tesco double, then we'll have doubled our money. Fine, but that's a mere tautology. What if they don't? What's the expectation of rising versing falling?

In one article we see suggestions of buying safe reliable companies (at prices which are probably too high, BTW, but there's no mention of that), and in others, like this one, we see suggestions for buying much riskier companies. All well and good, but without nailing your colours to the mast, it's difficult to decide what's signal, and what's noise.

richjfool 13 Aug 2012 , 4:21pm

I'll take the stocks listed in the article as a list of stocks to avoid then, thanks.

In fact I would be more interested in stocks that won't fall when the market does, as falls would seem more likely in my book.

atilliator 13 Aug 2012 , 7:59pm

It's that man again. [My capitals.]

"Shares in housebuilders will always be BUFFETTED by investors' economic expectations."

dukindiva 15 Aug 2012 , 11:12am

I'm with ScottishPound, higher beta = higher volatility..... I'll keep looking for lower beta shares that pay reasonable dividends.

kudos101 15 Aug 2012 , 4:03pm

Very fair article. Gives food for thought and research. Very negative comments not merited. For example the article gives a very good idea of what high beta means. You may not wish to buy the stocks but it is an interesting read.

goodlifer 15 Aug 2012 , 8:47pm

dukindiva
"I'm with ScottishPound, higher beta = higher volatility..... I'll keep looking for lower beta shares that pay reasonable dividends."

OTBE, a nice high beta's a bit of plus.
As well as your reasonable divi there's the chance of a lucrative, opportunistic sale.

lowmaple 16 Aug 2012 , 6:37am

Shares on this list should be viewed cautiously, but buying a small percentage in your basically conservative portfolio may give you great gains and that is the point.

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