Plenty of shares have been hitting new highs recently, with the FTSE 100 finally breaching 7,000 points and a number of sectors responding positively to the Tory victory in the General Election.
Lloyds is galloping, housebuilders (such as Barratt Developments, which released positive news today) are flying, tech and telecoms firms such as Sage and BT are buzzing, and many retailers, including Marks & Spencer and Debenhams, are marching higher.
When investors are falling over themselves to buy certain sectors and stocks, it can often pay to look at neglected parts of the market. Right now, with many cyclical stocks in vogue, a number of solid, defensive companies have been left behind.
At the time of writing, National Grid (LSE: NG) (NYSE: NGG.US) and Reckitt Benckiser (LSE: RB) are 7% below their 52-week highs, while British American Tobacco (LSE: BATS) (NYSE: BTI.US) is off by 9%.
All three companies have delivered excellent long-term returns for shareholders, without the extreme upswings and downswings of cyclicals, and now could be a good time to add them to your portfolio.
Consumer-facing energy firms, such as Centrica and SSE, and water companies, such as Severn Trent, come under attack from time to time from consumers, politicians and regulators. Meanwhile, National Grid works away behind the scenes, running electricity wires and gas pipelines, its shares largely immune to the bouts of volatility that can sometimes hit its more visible peers.
National Grid is set to announce its annual results for the year ended 31 March on Thursday next week (21 May). Analysts are expecting the company to post earnings per share of 55.7p, giving a price-to-earnings (P/E) of 16, which is a reasonable rating for a premium business. Meanwhile, a forecast annual dividend of 43.2p gives a well-above-market-average yield of 4.9%.
Analysts expect National Grid to deliver steady earnings growth to support the companys dividend policy of increasing annual payouts at least in line with the rate of RPI inflation for the foreseeable future.
British American Tobacco
The death of tobacco companies has been predicted for decades, but theyve shown a remarkable ability to continue generating cash and to deliver long-term value for shareholders. Renowned fund manager Neil Woodford reckons tobacco companies continue to be under-estimated and under-valued by the market.
In an industry that has seen value-enhancing consolidation over the years, and in which there are huge barriers for any would-be new entrant into the market, British American Tobacco is one of the worlds heavyweight players.
Analysts expect earnings to tick modestly higher for 2015, before growing 8% next year, giving a P/E of 17, falling to under 16. Rising earnings support managements intention to grow dividends in real terms and a prospective 5% yield.
Reckitt Benckisers name may not be as familiar to consumers as Unilevers, but Reckitts market capitalisation has overtaken that of its rival in recent years, with its focused portfolio, led by 19 market-leading Powerbrands, being highly valued by the market. Global brand favourites such as Cillit Bang, Vanish, Gaviscon and Durex are great engines for growth in a world where long-term rising incomes in emerging markets provide a strong tailwind.
Reckitts high margins testify to the desirability of its brands and the super-efficiency of its business; and its not surprising that the company commands a premium rating on the stock market.
Analysts are expecting mid-single-digits earnings growth this year (giving a P/E of 23.8), accelerating to high-single-digits growth next year, as the companys latest efficiency drive Project Supercharge kicks in, bringing the P/E down to 22.1. Despite the shares being off their 52-week high, the rating is still a little high, but Reckitt has often surpassed analysts earnings forecasts in the past.
Finally, I can tell you that two of the companies featured in this article have made it into an elite group of five blue chips identified by the Motley Fool’s experts as FTSE 100 powerhouses.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and owns shares in Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.