10 Blue Chips Attracting Broker Upgrades

Published in Investing on 17 October 2012

Analysts have been rushing to upgrade their profit forecasts at these ten shares.

Professional investment analysts have great access to data and management. The level of insight they possess is well ahead of what most armchair investors can manage. So when they rush to upgrade profit forecasts, there are normally good reasons.

Here are the ten largest companies that have been upgraded at least five times in the last month:

CompanyPrice (p)Upgrades in last monthP/E (forecast)Yield (forecast, %)Market Cap (£m)
Royal Dutch Shell (LSE:RDSB)2,19458.25.182,015
BG (LSE:BG)1,322715.51.244,949
Diageo (LSE:DGE)1,781517.22.744,677
Barclays (LSE:BARC)23667.12.728,909
Imperial Tobacco (LSE:IMT)2,299511.54.522,742
Royal Bank of Scotland (LSE:RBS)268713.4016,722
Fresnillo (LSE:FRES)1,927629.61.813,823
Antofagasta (LSE:ANTO)1,264714.72.412,465
British Sky Broadcasting (LSE:BSY)750713.43.812,407
Wolseley (LSE:WOS)2,660614.72.67,616

Data from Stockopedia

These four looked particularly interesting.

1) Royal Bank of Scotland

RBS is the share that investors have been writing off for years. Apparently the company was facing irresistible headwinds. Today, though, attitudes toward RBS are showing signs of thawing.

Shares in RBS are up 35% in the last three months. For 2012, analysts are forecasting earnings per share (EPS) of 20.0p, which is expected to increase to 27.5p for 2013. While there is still no dividend, the expectations are that RBS will start paying again for 2013. This would be a significant milestone in RBS's rehabilitation.

So, why have analysts been upgrading their expectations?

Nic Clarke is a banking analyst at City stockbroker Charles Stanley (LSE: CAY). He explains the upturn thus:

 "RBS has made good progress de-risking its balance sheet. RBS has improved its capital ratios and loan-to-deposit ratio. RBS is now in the last stages of running down its non-core bank and has exited the expensive Asset Protection Scheme. Combined with better news from the UK economy and EU policymakers, the result has been an improvement in investor sentiment."

2) British Sky Broadcasting

Today, Sky is more than just a pay-TV company. Sky's triple-play offering of TV, telephone and internet is enjoying increased penetration of the UK market. Sky continues to recruit more customers and sell them more services.

In its most recent annual results, the company reported its customer base increasing 3%. The value of these customers was accelerated by a 21% increase in subscribers paying for all of Sky's three main services.

Sky continues to innovate and deliver more content and products into the market. In particular, Sky Go is the company's service to subscribers that want to watch programmes on a tablet or smartphone. Possibly more exciting, however, is the development of NOW TV. This is a parallel service to Sky that is out to compete with LoveFilm and Netflix.

Analysts expect EPS growth of around 4% this year and next. Dividend growth is expected to be slightly higher.

3) Fresnillo

Fresnillo is a leading precious metals explorer. The company's assets include the world's largest silver mine, after which the company is named.

As you may have expected, the precious-metals boom has enriched Fresnillo shareholders. In the last five years, the shares are up almost three-fold.

Recent production figures from the company impressed the market, with Fresnillo reporting record gold production in the year to date. The company also assured the market that its own production targets for the full year would be met.

Resources companies, such as Fresnillo, are a geared play on the price of the commodity they produce. As such, an improved outlook for mineral and metal prices will often result in earnings upgrades for miners.

Policy developments in the US and the eurozone have provided some support for precious-metal prices. In the last three months, the price of silver has increased 27% while gold is up 9%.

The benefit to Fresnillo investors is clear. The shares have advanced 36% in the last three months.

4) Royal Dutch Shell

Next year's profit forecasts for Shell have risen steadily since August. The consensus of opinions currently puts the shares on a 2013 P/E of just 7.7. The expected yield for 2013 equates to 5.3%.

These ratings are significant. Rarely in the last five years has this FTSE 100 (UKX) titan been so cheap on both earnings and dividend measures. Of course that doesn't mean that the shares cannot get cheaper -- in June, Shell was priced at around 2,000p.

As fears for the global economy have eased, the price of oil has been increasing. In the last three months, crude oil futures are up 10%. At a company like Shell, this obviously feeds through to analysts' profit expectations.

Today, the analyst consensus is for Shell to deliver $4.32 per share of earnings in 2012. While this is down on 2011, it is significantly more than what the company made in 2009 and 2010.

Shareholders can make huge gains investing in the oil and gas industry. If you would like to learn more about how to pick potential winners in the sector, then request a copy of the latest Motley Fool report "How to Unearth Great Oil & Gas Shares". This guide is totally free and will be delivered to your inbox immediately.

Where is the UK's leading dividend stock-picker investing today? The identities of Neil Woodford's favourite blue chips are revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor".

Further investment opportunities:

> David owns shares in Royal Bank of Scotland. The Motley Fool owns shares in Charles Stanley.

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