Nicholas Hyett 7 December 2018
Nicholas Hyett, Equity Analyst
November’s newspapers were dominated by Brexit. But with little certainty despite the progress, the stock market’s been a bit of a rollercoaster. With a parliamentary vote of the Prime Minister’s deal scheduled for the 11th, December looks like it could be similar.
With stock markets volatile, it’s good to see a selection of income names topping the list of popular FTSE 100 stocks. When share prices are flying around, dividends can provide a more reliable return. But clients have also taken the opportunity to dabble in a smattering of opportunistic FTSE 250 purchases too.
November’s most popular shares
The links below show the FTSE 100 and FTSE 250 shares (excluding investment trusts) with the highest number of net buys (buys minus sells) among HL clients in November. We’ve also included the most popular large* overseas shares (excluding investment trusts and ETFs).
These are provided for your interest, but aren’t a guide as to how you should invest. You should consider your own aims and attitude to risk before making any investment decisions, and remember that investments and income will fall as well as rise in value so you could back less than you invest. If you’re not sure whether an investment is right for you, please take advice.
Shares listed alphabetically
*Of equal or greater size than the market capital of the smallest FTSE 350 stock
It was a tough month for British American Tobacco (BATs) investors, with the shares falling 19%. That followed an announcement that the US regulator was looking at a crackdown on flavoured tobacco and e-vapour, including menthol.
Restrictions on menthol wouldn’t be a total surprise – it’s been in regulators sights for years as a gateway product for new smokers. But following BATS deal to buy Reynolds a few years ago, it’s heavily exposed to the segment. With an estimated 20-25% of BATS profits coming from US menthol – you can see why investors were concerned.
A tougher stance on e-cigarettes is equally unwelcome. Revenues from BATS’ 'glo' and 'Vype' heated tobacco and e-vapour brands are insignificant in the context of the wider group at the moment. But their fortunes are important. In an industry in terminal decline, long-term potential matters.
It’s worth flagging a few things going in BATS’ favour though.
Firstly as a massive global company, it’s got the cash and technical expertise to negotiate tougher regulation of e-cigarettes that many smaller rivals lack. Tougher regulation may actually reduce competition for tobacco majors.
Secondly, smokers are nothing if not brand loyal. If menthol is banned, we’d expect significant numbers to move over to non-menthol versions – preserving profits.
That probably explains why despite the share price fall, analysts continue to expect dividend growth over the coming years. Currently that suggests a dividend of 7.7% next year, although if November shows anything it’s that regulators aren’t afraid to upset the apple cart.
Like most oil companies, Tullow has suffered as the oil price slid in November. You’d expect as much – as an oil producer its revenues are simply the sum of volumes produced and price received.
What caught us off guard was an announcement on 29 November that the company feels sufficiently secure to start paying a dividend. We had expected Tullow to focus on debt repayment for a few more years yet.
Only time will tell if another year’s debt reduction would have been more sensible than a $100m dividend in 2019. Should the oil price crash again it could yet be a decision the board regrets.
But it’s certainly a massive vote of confidence by management – and the company has come a very long way. The flagship Ghanaian oil fields are producing tens of thousands of barrels of oil a day, and with new wells being drilled next year, production is expected to soar further.
If the oil price holds up that will leave Tullow awash with cash – more than covering the dividend while also paying down debt, funding exploration and potentially fuelling further returns to shareholders.
But don’t lose sight of the ‘if’.
Facebook's been ramping up investment recently.
Results at the tail end of October saw quarterly revenue jump 33% to $13.7bn. But increased costs and efforts to changing user preference towards more difficult to monetise apps like Instagram and Messenger meant profits were a more modest 13% up on last year. With capital expenditure soaring in preparation for expansion into Asia, you’d be forgiven for worrying about Facebooks profit line.
It doesn’t help that senior executives have become embroiled in controversy about attempts to discredit Facebook’s critics. Investors will have been hoping the company had put that sort of thing behind it with the Cambridge Analytica scandal.
Longer-term, Facebook’s got some great opportunities though. Instagram and WhatsApp are untapped resources, and revenue per user outside the US is a fraction of that achieved in the States.
With the sun rising over Asia and attention focussed on keeping the core product offering healthy – it’s hard to criticise investors for taking advantage of the recent fall in valuation.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.