One of the oldest and most clichéd of investment adages refers to the theory that fund managers and traders pack up and leave the City in the summer months, decreasing trading volumes and increasing the likelihood of a slump in markets.The fact that this sentence rhymes is about all that’s going for it.
Market timing is difficult enough as it is, but automatically selling in May and buying back in September just because turnover is thin is wishful thinking at best.
Indeed it has worked against investors in recent years, even before taking trading costs into account.
Research from Hargreaves Lansdown suggests that the theory has worked 38 per cent of the time since 1985, and has once again failed this year, with the markets currently up 2.86 per cent since 1 May 2014.
Still for those who did listen to the old adage, or are parking their cash on the sidelines for different reasons, here The Share Centre’s Helal Miah suggests three of his favourite stock picks for different types of investor.
Low risk choice – GlaxoSmithKline
“The defensive nature of the sector and the stock, and the competitive yields paid to investors, make this a core holding for many portfolios and why we recommend it for low risk investors,” said Miah (pictured).
“GlaxoSmithKline is very cash generative and is committed to using this towards increasing dividends, share buybacks and bolt-on acquisitions.”
“One of the key attractions of the business over other large pharmaceuticals is the promising pipeline of drugs coming through R&D. The group also remains focussed on reducing costs, new manufacturing processes and a major change programme, which is expected to save £1bn a year by 2016.”
“The hope for future improvement should be helped by new products, diversification in consumer healthcare and biotechnology and increasing exposure to emerging markets.”
GlaxoSmithKline has had a tough time of late, losing almost 8 per cent year-to-date thanks largely to poor profits reported in July. This puts it at an attractive entry point for investors, Miah says.
Performance of stock and index in 2014
Source: FE Analytics
Glaxo is one of the most popular stocks with fund managers.
CF Woodford Equity Income and Invesco Perpetual High Income are two of over 300 funds that hold it in their top-10, according to FE Analytics.
The company is yielding 6.16 per cent and is on a forward price-to-earnings (P/E) ratio of 15 times.
Medium risk choice – RPC
A big fall in FTSE 250 company RPC earlier this year has also opened up a buying opportunity, syas Miah.
“Whilst RPC may not be a well-known brand for investors the names it supplies plastic packaging to certainly are, including Nivea cream and Dulux paint,” said Miah.
“The group’s wide range of packaging products across many different sectors provides good diversity and exposure to a number of consumer markets.”
“The company’s recent move into the fast growing Asian markets, the streamlining of European operations and strong dividend policy are all attractive for investors looking for a mixture of income and growth.”
“We recently added RPC to our ‘buy’ list for medium risk investors seeking a balanced investment. The poor economic backdrop in Europe and imminent prospect of rising UK interest rates may weigh on the shares.”
“However, we believe they offer good value at this level, having dipped from a recent record high-point in June.”
Performance of stock and index over 5yrs
Source: FE Analytics
The stock is significantly less popular than Glaxo, appearing in the top-10 of only 20 IMA funds.
These include CF Miton UK Value Opps and Marlborough Multi Cap Income.
RPC is on a forward P/E of 11 times and is yielding just over 3 per cent.
High risk choice – Randgold Resources
“Randgold Resources is a pick for higher risk investors looking for an investment that is a play on the price of gold,” said Miah.
“The company has been ramping up production consistently to record levels, while expansion and exploration seem to be progressing well.”
“It produces gold at a relatively lower cost compared to most of its peers. However, as its principal operations are in Mali, a country with significant levels of political instability, this is not for the faint-hearted.”
“The recent tensions have impacted confidence in the company's share price, but the operations on the ground remain largely unaffected.”
Performance of stock and index over 3yrs
Source: FE Analytics
Though Randgold’s performance has improved of late, it’s still sitting on losses over one and three year periods.
It is on a forward P/E of 25 times and is yielding 0.6 per cent.
Six IMA funds hold it in their top-10, including BlackRock Gold & General and Fidelity UK Growth.