This Month's 12 Hottest Blue Chips

Published in Investing on 4 December 2012

These large-cap shares have suddenly soared away.

There are always winners and losers in the market. Sometimes, a key announcement leads to a big share price move. This could be a trading statement, or a takeover approach. Sometimes, a sector simply moves back into vogue, perhaps as a result of macroecomic developments.

I trawled the FTSE 100 (UKX) to find the 12 companies that had outperformed most in the last month. As the market starts to favour these companies, could further gains be in the pipeline?

NamePrice (p)Outperformance (1 month, %)P/E (forecast)Yield (forecast, %)Market cap (£m)
ITV9912.711.42.43,980
ARM Holdings7749.853.40.510,678
Burberry1,2878.419.62.15,685
Croda International2,3838.218.72.53,225
InterContinental Hotels1,6728.018.82.44,552
Intertek3,0987.724.21.34,981
SABMiller2,8357.119.12.245,209
British American Tobacco3,2876.715.94.163,676
Imperial Tobacco2,4976.511.74.624,670
Associated British Foods1,4786.515.82.111,731
IMI1,0586.413.13.13,397
Lloyds Banking46.66.118.6032,841

Data from Stockopedia

I've selected five for more analysis.

1) ITV

ITV (LSE: ITV) is the television company behind The X Factor, Dancing on Ice and Coronation Street. As you may have expected, the company's revenues are highly dependent on advertising.

Advertising is a cyclical industry. When companies are confident, they are more likely to spend money. When the economy is growing, companies compete for the same advertising slots, pushing up prices.

ITV revenues were last reported at £1.57bn. That's significantly up on the £1.31bn the company raked in for the same period in 2009.

Costs in a business like ITV are normally less variable then revenues, so a small change in sales can have a dramatic impact on profits.

ITV is forecast to make 8.6p of earnings per share (EPS) in 2012. That is 39.5% higher than the amount made last year. In 2009, ITV reported EPS of just 2.7p.

2) ARM

ARM (LSE: ARM) is one of the UK's few world-class technology businesses. Currently, the company is riding the smartphone and tablet boom.

ARM designs the processors that find their way into devices like the iPad. As these new application areas have emerged, ARM sales have boomed. Revenues of £260m in 2007 grew to £490m by 2011. EPS has increased from 2.7p to 8.8p in just four years.

Further profit growth is expected as the operational gearing delivered by design rather than manufacture kicks in. EPS is expected to rise to 14.5p for 2012. Another 22.5% of EPS growth is expected for 2013.

ARM shares have been rising since the company announced its third-quarter results at the end of October. This showed that the rate of revenue and profit growth had increased from the half-year stage.

3) British American Tobacco

British American Tobacco (LSE: BATS) is owner of the Dunhill, Pall Mall, Kent and Lucky Strike cigarette brands.

Tobacco companies have long been considered some of the most reliable investments. The dedicated (addicted) customer base is also incredibly brand loyal -- not only do they keep buying cigarettes, but they insist on the same brand: often for decades.

This has made BAT into one of the very best income shares on the market. The BAT dividend has been rising since 1999. In the last five years, the shareholder payout has increased at an average of 17.8% per annum.

On the earnings side, EPS has been increasing by an average of 10.1% a year for the last five years. Expectations are for another two years of earnings and dividend growth, putting BAT on a 2013 P/E of 14.5 and a yield of 4.5%.

4) Imperial Tobacco

Imperial Tobacco (LSE: IMT) has a similar track record to its rival BAT. The Bristol-based firm makes cigarettes under the Gauloises, West and Davidoff brands. Imperial is also the company behind Golden Virginia.

My concern about tobacco shares is the ongoing regulatory offensive. Tobacco advertising has already been removed from almost every medium in the UK. Australia recently brought in a new law that will only allow tobacco to be sold in plain packs. The Welsh assembly has recently banned large displays of tobacco in supermarkets. The ban will apply to all stores from 2015.

Despite these headwinds, many expect that Imperial Tobacco will benefit from growth in developing countries. My concern is that anti-tobacco measures in developed markets will have a significant long-term impact on sales.

Still, Imperial trades on 11.7 times the 2013 forecast. That's not particularly demanding.

5) Lloyds Banking

Lloyds Banking (LSE: LLOY) is one of the FTSE 100's best performing shares this year. As the eurozone crisis has calmed, the entire UK banking sector has risen. Of the bank shares, Lloyds has been the biggest beneficiary of increased confidence in the industry.

I expect that Lloyds will continue to benefit from improved market sentiment. The key to valuing Lloyds is to estimate the likely size of future impairments. In its last trading statement, the bank confirmed impairments had fallen 40% from the year before. If the UK economy can recover and return to sustained growth, impairments losses could narrow dramatically.

In the first nine months of the year, Lloyds made an underlying profit of £1.9bn. This was after impairments of £4.4bn but before PPI costs of £2.1bn.

The question anyone looking at Lloyds needs to ask themselves is: what will the company's long-term profitability be? With a forward P/E of 18.6, the market is saying it will be well ahead of what Lloyds reports for 2012.

If you are interested in using shares to boost your wealth, then take a look at this free report "10 Steps To Making A Million In The Market". This details some of the best investment tactics known. Don't delay, click here and start reading today.

> David owns shares in Lloyds Banking but none of the other companies mentioned. The Motley Fool has recommended shares in Burberry.

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