FTSE 100 Stocks - Best Buys & Review of Past Recommendations
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12th May 2021
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In my recently completed technical analysis update for the stocks in the FTSE 100 index, seven were identified as having very bullish charts:- 3i Group, Admiral Group, Croda International, Halma, JD Sports Fashion, Spirax-Sarco Engineering and Segro.
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Of a total of 93 stocks reviewed, 70 were bullish and 23 were bearish. This indicates that the overall upward trend is broadly based. In a typical bull market, 7 out of 10 stocks rise, and the recent upward trend in the FTSE 100 index stocks is in line with this. This statistic exposes the fallacy of the bearish argument that this bull market is all about 'Big Tech' - it most certainly is not.
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We are seeing some of the same names crop up again in the smaller list of stocks where the charts are deemed not just bullish, but very bullish, which were also identified in our review of FTSE 100 stocks in November 2020:- Croda International, Halma, Spirax-Sarco Engineering and Segro.
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Halma and Segro were the preferred stocks at that time, following a fundamental analysis of all of the above. An earlier review of FTSE 100 stocks in May 2020, shortly after the covid crisis caused the break downwards in markets, threw up only one stock of exceptional merit;- Admiral Group, so it is interesting to see it appear again in the most bullish charts list. It operates an insurance cost comparison website, 'Confused.com' and this is enabling it to transition to a more on-line focused business model.
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Two new stocks, 3i Group and JD Sports Fashion, appear on the list of seven that currently have very bullish charts - Neither of these appeared in the previous reviews done in November 2020 & May 2020.
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3i Group is a venture capital company that invests in privately owned businesses, with a view to exiting these investments at a later date either through an initial public offering (IPO) on the stockmarket, or by means of a trade sale. It is therefore highly sensitive to market conditions. The shares have recently broken through the all time high around £11.50 reached in September 2000, which confirms a very bullish outlook. What is going on here?
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My guess is that 3i Group shares look good value compared to the special purpose acquisition companies (SPACs) that are currently in vogue in the US. There has been a deluge of these SPAC listings recently, and these 'blank cheque' companies will have to find a home for investor's money, or else they will be forced to return these funds.
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3i Group now appears to have a golden opportunity to sell some of its investments to these SPACs, who are in effect forced buyers. The dividend yield is 2.9% and the net asset value (NAV) per share is estimated to be £9.36 per Hargreaves Lansdown. The shares are trading at £11.98, so they are at a substantial premium of 28% over the NAV. Historically, these shares trade at approximately 10% over NAV. The rise in the premium to 28% might at first glance indicate that the shares are now very expensive. However, I take the view that the SPAC frenzy in the US could be a game changer for 3i Group, and the net asset value per share could be considerably underestimated as a result.
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The analysts covering 3i Group are turning bearish, due to the higher valuation as evidenced by the increase in the premium of the share price over NAV. However, my thinking is that the abnormally high premium to NAV could signal that something is brewing here. Perhaps one or more SPACs might bid for 3i Group? With a market capitalisation of £11 billion, it is a possibility. A SPAC recently acquired Grab (the Asian ride hailing and delivery service app) in a huge £39 billion deal.
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JD Sports Fashion sells 'athleisure wear' and its business model of selling both on-line and in physical stores proved to be very resilient throughout the recent lockdowns. Hoodies and sneakers are selling well, and some of the prices paid by young people for the latter are quite astonishing. JD's recent acquisition in Poland demonstrates that the company is intent in expanding its presence outside of its home UK market. It has recently resumed dividend payments and the PE ratio is 38. That PE is not as expensive as it looks at first glance, as it is based on the covid depressed earnings of last year. Yes, JD Sports Fashion was resilient throughout 2020 due to its strong on-line business, but it did not completely escape the consequences of having a large 'bricks and mortar' chain of shops closed for most of last year.
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Hereunder is an update of the FTSE 100 stocks previously recommended:-
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Admiral Group
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Recommended on 19th May 2020 at £22.87
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Share price on 11th May 2021: £29.13
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Gain of 27% in 12 months
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Antofagasta
Recommended on 9th November 2020 at £10.98
Share price on 11th May 2021: £18.70
Gain of 70% in 6 months
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Halma
Recommended on 9th November 2020 at £24.93
Share price on 11th May 2021: £24.79
Loss of 0.6% in 6 months
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Polymetal International
Recommended on 9th November 2020 at £16.59
Share price on 11th May 2021: £16.03
Loss of 3.3% in 6 months
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Segro
Recommended on 9th November 2020 at £9.05
Share price on 11th May 2021: £9.89
Gain of 9% in 6 months
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Intercontinental Hotel Group
Recommended on 9th November 2020 at £46.81
Share price on 11th May 2021: £48.29
Gain of 3% in 6 months
Conclusion:
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The recent technical analysis review completed on 4th May 2021, indicated that all charts for FTSE 100 stocks that were previously recommended, remain bullish - with the exception of Polymetal International which has turned bearish. Therefore I recommend the sale of these shares (although as a gold miner, it could be argued that it provides useful diversification for your portfolio).
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The average gain on the shares recommended last November is 15.6%, achieved in a 6 month period. The sole stock that was recommended in May 2020 is up 27%, in 12 months.
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The corresponding figures for the FTSE 100 index are:- gain of 12% since 9th of November 2020, and a gain of 16% since 19th May 2020.
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The significant outperformance of the recommendations made, indicates that the combination of technical and fundamental analysis being used is working well.
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The 70% gain in Antofagasta, which is a copper miner, is explained by the increasing demand for copper which is a key component in electric vehicles. The car makers are beginning to get their act together at last in that regard, and are catching up with Tesla, judging from their recent advertising.
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The other UK stocks recommended last November are a mixed bag so far - but the stunning gain in Antofagasta illustrates how technical analysis nearly always flags the big moves in the market, just in time for you to jump on.
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The only time that technical analysis does not work, is when there is a 'whipsaw' market. That is when there is no discernable trend in the stock, or market index, or the trend keeps changing. A 'whipsaw' market is quite rare, and we have not seen one yet since the launch of 'Sexton Reads The Charts' at the end of 2019.
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The objective in that regard, is to have made considerable profit in trending markets, so that one can very comfortably absorb the early losses in a 'whipsaw', then largely withdraw from the market, and get ready to participate again when a new trend clearly emerges.
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The current recommendations are:-
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3i Group, Admiral Group, Antofagasta, Croda International, Halma, JD Sports Fashion, Segro, Spirax-Sarco Engineering and Intercontinental Hotel Group.
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These recommendations are based on technical analysis, which was then supplemented with some fundamental analysis. The fundamentals of 3i Group and JD Sports Fashion are examined above, and a detailed fundamental analysis of all of the other stocks was done in the November 2020 and/or May 2020 article on FTSE stocks in the Market Topics section of this website.