There’s no charge for this.
This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
[vc_row][vc_column width="1/1"][vc_column_text]The end of the year is fast approaching and now is an excellent time for traders – both bullish and bearish - to consider what December and January may have in store for their financial portfolios.
Analysing historical data going back over three decades, we have noted that December often sees a stock market rally to cap the end of the trading year.
Our data shows that the UK Index has one of the best December hit rates over the past 34 years; it was up a whopping 27 years/79%, for an average 2.4% rise. With the blue-chip index -8.2% year-to-date, is there potential for yet another December catch-up?
Fuelling this trend is the phenomenon of window dressing, where fund managers get rid of underperformers and rush to buy the year’s outperformers to flatter the end-of-year statements sent to investors. This often creates a “Santa Rally”.
A similar school of thought, known as the “January Effect”, holds that the prior year’s laggards tend to do well in the first month of the year. Bargain-hunting fund managers, aiming to beat the market and outperform peers, seek out stocks at low prices. When other traders follow suit, these stocks can rally and the recovery gains momentum that pays off.
With these theories in mind, we have analysed the 12 worst performing stocks year-to-date on both the UK 100 and to assess which of them have the best potential for a 2019 recovery and might brighten your gift basket come Christmas.
Why have these stocks lost ground in 2018?
There are a host of reasons that have sent these prices of these shares lower. Markets are off their Spring highs on concerns that a Tech-led rally has peaked and lingering US-China trade worries. Brexit and geopolitical uncertainty have been an obvious hindrance. Whilst a weak GBP has benefited some shares, a reciprocally stronger USD has been a headwind for others, itself a result of rising bond yields as US interest rates rise and the end of cheap money creeps closer everywhere else.
The frequency of profits warnings has also risen, with companies finding it more difficult to hit targets. The advantage of this for investors is that companies may be less likely to aim too high next time, not wanting to disappoint again, meaning the next set of results could impress and help shares recover faster.
Are these stocks set to recover?
There are several reasons for some of the worst performing UK 100 and 250 stocks to see a share price recovery over the next two months. In the case of the UK 100 , many of the names languishing at the bottom of the performance tables are multi-billion-pound stalwarts of the UK blue-chip index and, in some cases, recognisable household names. After a year of underperformance, management will surely be focused on turning the tide of sentiment in favour of a share price rally.
Don’t forget many also have high dividend yields (in some cases very high after those share price falls) which should maintain interest in the shares, offering near-term support, and possibly even the recovery momentum those fund managers are looking for. Can these companies put a tough 2018 behind them, start the new year on the front foot? Could they even rally into year end?
Accendo Markets’ research team puts together daily publications on indices, commodities and blue-chip equities. To discover our award-winning offering, sign up to have it delivered directly to your inbox.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/1"][vc_column_text]No guarantees, but statistics supportive
Source: CMC Markets, 21 November 2018
As the saying goes, “there’s no smoke without fire”, and this certainly applies to the Santa Rally phenomenon. The table below – showcasing yearly performance since 2007 and average performance since 1984 – shows that, over the past 34 years, the UK 100 has rallied 27 times in December. An impressive 79% hit rate. Moreover, a full 30% of these have seen a Santa Rally in excess of +4% (38% more than 3%, 56% more than 2%).
The best UK 100 Santa Rally performance (+8.5%) came in 1987 and, there have been 7 instances of rallies greater than 5% (1987, 1989, 1993, 1997, 1999, 2010 and 2016). Conversely, the worst 4-week performance came in 2002 (-5.5%), easily underperforming other negative years, with the UK 100 losing more than 2% on only one other occasion (2014).
But the phenomenon isn’t limited to the London stock market, with most other major indices enjoying the same seasonal rise, although the UK 100 tops the scoreboard for the number of positive years.
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Christmas gifts for UK Index blue-chips
For the UK 100 to rise, individual blue-chip components must, therefore, also be prone to rally in the final 4 weeks of the year. The table below highlights the 20 companies whose share price has increased on most occasions since 1994 (note shorter dataset for shares than indices).
The most striking takeaway is that the rank outperformer, CRH, is the only UK 100 company to have rallied on 21 occasions out of 24 (88% hit rate). The company also sits confidently in the Top 5 for best average Santa Rally performance, with an average gain of more than 6% in December.
Other companies of note include media giant WPP (20 up years), the only one up for the past 12 years, with a similarly strong 6% average gain. Housebuilder Taylor Wimpey (19 up years) may have risen fewer years but has just as impressive an average gain: 6.0%. In fact, property/building makes up half of the top 12, with average up years of 19 and an average gain of 4.8%.
Not every stock will enjoy a Santa Rally every year and there is no guarantee that we will see a UK Index bounce this December, with global equities in a corrective phase since late October. And yet, this isn’t the first bear market seen this year, with many stocks either fallen and bounced back several times. Starting in January, the UK Index fell 950 points (13.8%) over a 2-month period, but then rallied back over 15%, reaching record high levels in May.
It is worth noting, therefore, that some of the best historical performers have had a torrid 2018. WPP cut its profit targets in March and reported a slow start to 2018 while long-term CEO Sorrell was ousted in April. Its shares are -42.5% from 2018 highs, just 3.5% off 2018 lows, -36% year-to-date. Will it be rescued by its 83% positive hit rate? Or will it finish the year with a lump of coal in its stocking?
Another struggler is Taylor Wimpey (-30% from 2018 highs, +1.6% from lows, -27% year-to-date), with Brexit uncertainty weighing heavily on the UK housing market. Will its 79% hit rate help it build a Santa Rally?[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Christmas gifts for UK Index blue-chips
For the UK 100 to rise, individual blue-chip components must, therefore, also be prone to rally in the final 4 weeks of the year. The table below highlights the 20 companies whose share price has increased on most occasions since 1994 (note shorter dataset for shares than indices).
The most striking takeaway is that the rank outperformer, CRH, is the only UK 100 company to have rallied on 21 occasions out of 24 (88% hit rate). The company also sits confidently in the Top 5 for best average Santa Rally performance, with an average gain of more than 6% in December.
Other companies of note include media giant WPP (20 up years), the only one up for the past 12 years, with a similarly strong 6% average gain. Housebuilder Taylor Wimpey (19 up years) may have risen fewer years but has just as impressive an average gain: 6.0%. In fact, property/building makes up half of the top 12, with average up years of 19 and an average gain of 4.8%.
Not every stock will enjoy a Santa Rally every year and there is no guarantee that we will see a UK Index bounce this December, with global equities in a corrective phase since late October. And yet, this isn’t the first bear market seen this year, with many stocks either fallen and bounced back several times. Starting in January, the UK Index fell 950 points (13.8%) over a 2-month period, but then rallied back over 15%, reaching record high levels in May.
It is worth noting, therefore, that some of the best historical performers have had a torrid 2018. WPP cut its profit targets in March and reported a slow start to 2018 while long-term CEO Sorrell was ousted in April. Its shares are -42.5% from 2018 highs, just 3.5% off 2018 lows, -36% year-to-date. Will it be rescued by its 83% positive hit rate? Or will it finish the year with a lump of coal in its stocking?
Another struggler is Taylor Wimpey (-30% from 2018 highs, +1.6% from lows, -27% year-to-date), with Brexit uncertainty weighing heavily on the UK housing market. Will its 79% hit rate help it build a Santa Rally?[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Lumps of coal, but with a shine
Examining December laggards also offers some interesting nuggets of insight. Surprisingly, less than 10% of current UK 100 members have a negative average December performance since 1994, only one of them being for anything worse than -1%. Strong statistics.
What immediately jumps out from this list is that, despite weak performance, less than half of the list (9 out of 20 names) have been, on average, negative into year-end with bottling company Coca-Cola HBC, a relative newcomer, the big stand-out (average -3.3%), weighed down by a poor 2014 and 2015.
Many of the other laggards have, on average, still traded pretty much flat to +1%. Hardly a disaster. Many even have hit rates that could compete with some of the winners, up 10-16 of the past 24 years. Look at engine manufacturer Rolls-Royce (+1% average; 62% hit rate) and retailer Next (+0.2% average, 58% hit rate).
A brief sector analysis shows Banks and Pharmaceuticals tending to be weak (though still technically positive) performers in December, while Construction and Mining have a history of outperformance.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Benefiting from the downturn
The Santa Rally phenomenon is just that. It’s based on historical data. No guarantees, but statistically significant and commonly accepted. To harness these statistics and transform them into better quality and tradable opportunities, investors might also want to consider current year-to date performance. Why?
As much as the theory has it that a Santa Rally can be fuelled by more buying of stocks that have done well (the “window dressing” we mentioned earlier), some of the most attractive tradable opportunities could also lie among those stocks which have a strong record of year-end gains but have performed poorly this year. Catch up trades, if you like. Below are the 12 worst UK 100 and performers of 2018 so far.
As in previous years, a number of these stocks hail from similar sectors. Health care equipment manufacturers Spire Healthcare and Mediclinic suffered after profits warnings. Regulation and tax changes in Gambling have hurt Playtech and William Hill. IT stocks have also been hurt, with both Micro Focus, Sophos and Sage Group warning of weaker outlooks and lower profits.
Advertising agency WPP also cut its profits targets in March and reported a slow start to 2018. Vodafone is struggling to overcome investor doubts about its re-growth strategy and big debt pile, especially after its long-term CEO left in the Spring.
British American Tobacco is struggling to adapt to a changing financial environment. Tobacco manufacturers benefited from low bond yields, investors rushing to tobacco as proxies for stable income. As bond yields began to rise again, the rotation back to bonds has understandably seen Tobacco shares stubbed out.
We thus have several big household names which have underperformed so far this year, easily recognisable to both financial investors and the man-on-the-street alike. And many of them tend to do well in December.
Overleaf, we have identified a handful of attractive trading opportunities for December. Not just because their share price is depressed, but because the statistics would imply that they have a better than average chance of delivering a bounce back into the year-end.
On the following pages, we delve into our 12 favourite stock picks for this year’s Santa Rally, highlighting charts, broker projections and technical analysis for each. Will we see a rally in these stocks come Christmas?[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/1"][vc_column_text]William Hill (WMH)
Source: CMC Markets, 20 November 2018
Will William Hill return to recent 225p high (+30.1%) or fall to Nov 2010 low of 154p (-11.2%)?
Broker Consensus: 53% Buy, 41% Hold, 6% Sell
Bullish: Investec, Buy, Target 353p, +104% (31 Oct 18)
Average Target: 287.31p, +66.1% (20 Nov 18)
Bearish: Numis, Hold, Target 210p, +21.4% (8 Oct 18)
Pricing data sourced from Bloomberg on 20 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]WPP (WPP)
Source: CMC Markets, 20 November 2018
Will WPP bounce to Oct highs of 1157p (+36.1%) or continue to June 2012 low of 732p (-13.9%)?
Broker Consensus: 34.5% Buy, 48% Hold, 17% Sell
Bullish: Société Générale, Buy, Target 1750p, +106.6% (13 Nov 18)
Average Target: 1083.48p, +27.8% (20 Nov 18)
Bearish: Day by Day, Sell, Target 621.43p, -26.6% (12 Nov 18)
Pricing data sourced from Bloomberg on 20 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Vodafone (VOD)
Source: CMC Markets, 20 November 2018
Will Vodafone rally to Sept highs of 171p (+11%) or fall to Oct low of 142p (-7.8%)?
Broker Consensus: 59% Buy, 27% Hold, 14% Sell
Bullish: ROE Equity Research, Buy, Target 300p, +94.8% (14 Nov 17)
Average Target: 198.86p, +29.1% (20 Nov 18)
Bearish: Macquarie, Underperform, Target 125p, -18.8% (13 Nov 18)
Pricing data sourced from Bloomberg on 20 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Taylor Wimpey (TW)
Source: CMC Markets, 20 November 2018
Will Taylor Wimpey return to Sept highs of 174p (+20%) or go to Nov 2016 low of 137p (-6.2%)?
Broker Consensus: 67% Buy, 28% Hold, 5% Sell
Bullish: Goodbody, Buy, Target 245p, +69% (13 Nov 18)
Average Target: 205.54p, +41.8% (20 Nov 18)
Bearish: Cenkos, Hold, Target 160p, -10.3% (13 Nov 18)
Pricing data sourced from Bloomberg on 20 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Kingfisher (KGF)
Source: CMC Markets, 20 November 2018
Will Kingfisher rally to Oct highs of 267p (+8.1%) or turn back toward Nov low of 238p (-3.6%)?
Broker Consensus: 57.9% Buy, 26.3% Hold, 15.8% Sell
Bullish: Morgan Stanley, Overweight, Target 390p, +59.2% (19 Sept 18)
Average Target: 308.82p, +26% (20 Nov 18)
Bearish: Investec, Sell, Target 235p, -4.1% (8 Oct 18)
Pricing data sourced from Bloomberg on 20 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]CRH (CRH)
Source: CMC Markets, 26 November 2018
Will CRH rally to 2018 highs of 2893p (+32.4%) or turn back toward Jun ’16 low of 1899p (-13.2%)?
Broker Consensus: 79.2% Buy, 20.8% Hold, 0% Sell
Bullish: Bryan Garnier & Co, Buy, Target 3378.3p, + 54.5%% (20 Nov 18)
Average Target: 2908.8p, +33% (26 Nov 18)
Bearish: Day by Day, Sell, Target 1699.85p, -22.2% (19 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Persimmon (PSN)
Source: CMC Markets, 26 November 2018
Will Persimmon rally to Oct highs of 2447p (+12.9%) or fall to 2018 low of 2045p (-5.7%)?
Broker Consensus: 79.2% Buy, 20.8% Hold, 0% Sell
Bullish: J.P. Morgan, Overweight, Target 3250p, + 50% (9 Nov 18)
Average Target: 2726.38p, +25.8% (26 Nov 18)
Bearish: Cenkos Securities, Hold, Target 2415p, +11.4% (9 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Barratt Developments (BDEV)
Source: CMC Markets, 26 November 2018
Will Barratt rise to Summer highs of 588p (+15.7%) or return to 2018 low of 475p (-6.5%)?
Broker Consensus: 68.4% Buy, 26.3% Hold, 5.3% Sell
Bullish: Credit Suisse, Outperform, Target 744p, +46.5% (17 Oct 18)
Average Target: 637.93p, +25.6% (26 Nov 18)
Bearish: Liberum, Hold, Target 525p, +3.3% (14 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Fresnillo (FRES)
Source: CMC Markets, 26 November 2018
Will Fresnillo rise to October highs of 982p (+26.7%) or fall to 2018 low of 738p (-4.8%)?
Broker Consensus: 56.3% Buy, 37.5% Hold, 6.3% Sell
Bullish: Goldman Sachs, Buy/Neutral, Target 1475p, + 90.3% (26 Oct 18)
Average Target: 1129.73p, +45.8% (26 Nov 18)
Bearish: Morgan Stanley, Underweight/Attractive, Target 715p, -7.7% (21 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Sage Group (SGE)
Source: CMC Markets, 26 November 2018
Will Sage go to Summer highs of 699p (+20.7%) or fall back to 2018 low of 492p (-15%)?
Broker Consensus: 44.4% Buy, 38.9% Hold, 16.7% Sell
Bullish: Jefferies, Buy, Target 820p, +41.9% (23 Nov 18)
Average Target: 594p, +2.8% (26 Nov 18)
Bearish: Day by Day, Sell, Target 450.6p, -22% (19 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Antofagasta (ANTO)
Source: CMC Markets, 26 November 2018
Will Antofagasta bounce to 2018 highs of 1012p (+26.7%) or go to 2018 low of 712p (-10.9%)?
Broker Consensus: 52% Buy, 32% Hold, 16% Sell
Bullish: Jefferies, Buy, Target 1300p, +62.9% (8 Nov 18)
Average Target: 594p, +2.8% (26 Nov 18)
Bearish: Liberum, Sell, Target 525p, -33% (16 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]Paddy Power Betfair (PPB)
Source: CMC Markets, 26 November 2018
Will Paddy Power rise to July highs of 8595p (+21.6%) or go to 2018 low of 6000p (-15.1%)?
Broker Consensus: 22.2% Buy, 44.4% Hold, 33.3% Sell
Bullish: Goodbody, Buy, Target 88600p, +25.3% (23 Nov 18)
Average Target: 6792.73p, -4% (26 Nov 18)
Bearish: Investec, Sell, Target 5640p, -20.3% (9 Nov 18)
Pricing data sourced from Bloomberg on 26 November 2018. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/1"][vc_column_text]
Whether you see UK Stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/2"][vc_column_text]
[/vc_column_text][vc_column_text]
[/vc_column_text][vc_column_text]
[/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]
While buying 15,730 shares in Lloyds Banking @ 63.57p requires an outlay of around £10,000 plus commission, the same exposure via a CFD requires about £2,000 plus commission (see right-hand box; margin + costs). If a trader invests in Lloyds Banking, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to Lloyds Banking shares - some of that capital could be put to good use elsewhere in the markets. (Source: CMC, Prices indicative)
If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up as little as 20%/£2,000 (note that overnight financing costs will still apply). The remaining £8,000 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty![/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width="1/1"][vc_column_text]
Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/1"][vc_column_text]
Does your current broker’s morning report tell you all you need to know about yesterday’s news? If so, how is it offering you anything more than the plethora of information already available on the internet?
We are proud that our morning editorial has become a hot commodity in the City, its content quoted daily by the journalists that are writing the news everyone else will be reading later in the day, if not the next. Our morning report tells you what is driving the market at that moment and what to look out for in the day ahead.
If a company has reported earnings before the market opens, we will tell you why the shares are called to open higher or lower in relation to that announcement.
As well as the Morning Report, signing-up to Accendo Markets Research & Trade Ideas offers you the chance to receive the following publications:
To ensure you can act as quickly as possible, you will receive an email with a link to the latest publication as soon as it is released. You can unsubscribe from these emails at any time.
Based on a wealth of experience, gained from both large and small institutions, our Research and Trade Ideas are produced in-house. Our team of dedicated professionals comprises both analysts and traders, drawing upon a wide range of resources and methodologies.
Our aim is to provide you with the manpower and expertise you need to help you clarify, interpret and capitalise on the ever-growing volume of market information.
The journalists do not pay for it and neither do you, so why not give it a go? You have nothing to lose and perhaps a little more to gain…[/vc_column_text][/vc_column][/vc_row]
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.
Prepared by Michael van Dulken, Head of Research