Using a market statistics package, I searched for the shares whose price movements have previously exaggerated the market’s by the most. This produces a list of shares that statistics show would be most likely to rise furthest should the market rise.
These are known as high-beta shares. There are two important things to note. First, just because a share has been high beta in the past does not mean it will be in the future. Second, just as these shares are expected to rise most in a bull market, statistics also suggest they would fall hardest if the market went into a decline.
Barclays
As the market completed a 16% rise by the middle of May, Barclays (LSE: BARC)(NYSE: BCS.US) was up 46%. When the FTSE ‘corrected’ and fell 13% to a low in June, Barclays’ shares shed 24% of their value.
This relationship has broken down in recent weeks as Barclays has undertaken a rights issue. The shares today no longer carry the opportunity to subscribe for the discounted rights. As a result, Barclays’ shares are down 10% in the last week.
Barclays is forecast to make 33p of earnings per share in 2014. That makes them cheap at 273p today.
Vedanta Resources
Resource companies are often the most highly geared to the wider market. The last year has shown Indian firm Vedanta Resources (LSE: VED) to be typical of this phenomenon.
The price that a resources company gets for its product is determined by the international markets. As a result, they are frequently a geared play on the global economy.
The company has recently increased profits and reduced debts. Shareholders also received a 5% dividend rise. Earnings forecasts for the full year suggest that Vedanta shares are trading on 18.8 times full-year earnings. A big profit rise is expected next year, pushing the P/E down to just 10.3.
Vedanta shares are forecast to yield 3.3% this year, rising to 3.4% for 2014.
Travis Perkins
The coalition government has successfully stimulated the UK housing market with its lending initiatives. This has led to a surging Travis Perkins (LSE: TPK) share price — shares in the builders’ merchant are up 48% so far in 2013.
The effect of Britains housing recovery is evident in the company’s earnings forecasts. A 24% profit increase is expected for 2013, followed by a 13% rise the year after. That suggests that 2014 earnings will be more than three times what was made in 2008.
This puts the shares on a 2013 P/E of 15.9, falling to 14.1 for 2014. The forecast yield on the shares is 1.9% for the year. A big dividend rise is expected in 2014.