LONDON — I’ve trawled the market to find the shares that have previously been least affected by big market rises or falls. Statistically, these are referred to as low-beta shares. This means that the wider market has less influence on their share-price movement than most others. If this continues in the future, these shares should be safe havens during a market panic.
National Grid plc (ADR) (NYSE:NGG)
As a provider of vital energy infrastructure, National Grid plc (ADR) (NYSE:NGG)‘s services are some of the least discretionary offered by any company in the FTSE 100. This makes their profits and earnings reliable and their shares steady.
Despite all of this, the shares have risen 18.9% in 2013. Shares in the company now stand within touching distance of a 10-year high.
National Grid plc (ADR) (NYSE:NGG) is forecast to increase its dividend again this year. A 5.3% increase is expected, pushing the yield for the year to 4.5%. Another similar rise is being penciled in next year, meaning that the shares trade on a prospective yield for 2014 of 4.7%.
A big earnings per share (EPS) increase is forecast for 2013. That puts the shares on a 2013 price-to-earnings (P/E) ratio of 15.1, a small premium to the rest of the market.
The porfolio of top-brand must-have domestic products gives Reckitt Benckiser Group Plc (LON:RB) pricing power and visibility of earnings. This has led to the company becoming one of the FTSE 100’s most successful.
Reckitt Benckiser Group Plc (LON:RB) has a 10-year record of successive dividend increases. In the last five years, that dividend has been increased by an average of 19.5% per annum. EPS has increased in that time at an average rate of 16.4% a year. As a result of this consistent success, the shares today stand close to an all-time high.
Reckitt Benckiser Group Plc (LON:RB) shares trade on a 2013 P/E of 18.1, falling to 17.3 times the 2014 forecast. The forecast yield for this year is 2.9%, rising to 3% next year.
On May 7, G4S plc (LON:GFS) announced that, although sales were ahead, operating margins had fallen.
This news forced analysts to reduce their profit forecasts for the company by around 10%.
Some positive remain. G4S plc (LON:GFS) is a big, successful, and diverse company. It has a customer list of the very highest-quality customers — frequently governments. A large proportion of G4S plc (LON:GFS)’s revenues will be tied to long-term contracts. This brings a high degree of certainty to future profits.
However, the profit warning throws some of this into doubt. There is also the fact that the Olympic fiasco gives customers an excuse not to select G4S plc (LON:GFS). The margin slip suggests that G4S plc (LON:GFS)’ offering is now less valued by customers than previously.
G4S plc (LON:GFS) shares trade on a 2013 P/E of 11.3, with a forecast yield of 3.8%.
There are good reasons shares in GlaxoSmithKline plc (ADR) (LSE:GSK) do not get thrown around by market extremes. First, as a pharmaceutical, demand for its products is unaffected by confidence in the financial markets. Its products are frequently so important to people’s well-being that the company’s fortunes are not even particularly dependent on the economy. Whatever the economic weather, patients need their medicine.
GlaxoSmithKline plc (ADR) (LSE:GSK) has a record of dividend increases going back more than 10 years. In the last five years, the payout has been increased ahead of inflation every year. Increases are forecast this year and next. That puts the share today on a forecast yield for 2013 of 4.5%, rising to 4.7% for 2014.
The 2013 P/E is 15.1 times the consensus EPS forecast, falling to 13.7 times in 2014 with the expected earnings increase.
Buy shares in British American Tobacco plc (LON:BATS) if you like, but I think that the shares are grossly overpriced.
Sentiment toward British American Tobacco plc (LSE:BATS) improved recently on the absence of plain-pack legislation in the U.K. This is a small and likely temporary victory: Tobacco legislation is tightening worldwide. Fiji will bring in tougher laws in July that will prohibit the activity in many public places. Individual cities in Indonesia are also implementing similar bans with by-laws. It feels like the tobacco industry is under attack in every country in the world.
Nevertheless, British American Tobacco plc (LON:BATS)’ track record is impressive. In the last five years, EPS has increased at an average rate of 13.6% per annum. In that time the dividend has been raised year in, year out, at an average rate of 15.3% a year.
The article 5 Shares to Avoid Market Madness originally appeared on Fool.com is written by David O’Hara.
David O’Hara does not own shares of any of the companies mentioned. He has bet that the price of British American Tobacco shares will fall. The Motley Fool recommends GlaxoSmithKline and Reckitt Benckiser Group.
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