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Home / Special Reports / Bargain Blue Chips

This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

4 September 2016

Bargain Blue Chips

Record highs on the UK 100 by year end?

The UK’s blue chip stock index has delivered exceptional trading opportunities to date in 2016 and the trend looks set to continue. While the index has edged back towards fresh all-time highs above 7000, even accelerating after the June Brexit vote, it remains about 300pts from the record highs of May 2015 - this as US stock indices are breaking their own records.

The uptrend has been checked somewhat by a corresponding uptrend in UK macro data. This seems counterintuitive, but signs that the UK’s economic outlook is improving unexpectedly are sure to push down expectations that the Bank of England will ease policy further. This in turn gives us a major reason for UK markets being up in the first place: Stimulus hopes – or more generally, central banks. Is this sustainable?

Thankfully, optimism remains with bulls appeased by the continued divergence in monetary policy between US and European central banks. Even if we don’t get any more goodies from the BoE, we can find comfort in the US Fed’s desperation to raise US interest rates. That means the USD will still strengthen to the detriment of the GBP and those all-important FX translation benefits could continue to underpin the UK 100 ’s recovery – could this be the dip on which to buy Tobacco and Oil stocks?

With the focus shifted from rate cuts to rate hikes, it’d be downright irresponsible to ignore the banks and financials at this point. The UK’s banks took a little hit when the BoE cut rates but they were thrown a rubber ring in the Funding for Lending Scheme. One UK blue chip Bank has plenty of US exposure. Higher interest rates could benefit financials – if we get them in the US.

The other sector that’s been in focus is, of course, property. UK House Builders have had a rough time of it after everyone said prices would tank by 20% in the event of Brexit. But considering that everyone also talks about ‘huge’ demand for houses – Brexit or no Brexit – it’s funny that those that control supply should be at all worried, especially since house price growth has accelerated in August, 2 months after the vote. Prices rise when demand outstrips supply. So, everyone’s racing to buy a house before prices fall are they?

If a selloff has ever been overdone, it could well have been this one.

Can the UK 100 regain 7100 by year end for returns of 4%? If it can, which stocks are going to give it the get up and go to get there?!

In this report we look at five key stocks to watch. There’s a Defensive, an Oil Major, a Bank, a Retailer and a House Builder. Which will drive the Index back to its all-time highs? Or will they all play just as important a part in the relief rally?

Read on to find out!

Page: 01

British American Tobacco (BATS) / Defensives

British American Tobacco PLC (LSE) (-)
Will shares break down below the channel floor at 4700p or rally back to the highs of 5000p?

  • Shares are at the floor of their 2-month trading range
  • RSI testing 12-month rising lows
  • Momentum negative; at a 9-month low
  • Stochastics oversold

Broker Consensus: 40% Buy, 48% Hold, 12% Sell

Bullish: Goldman Sachs, Buy/Neutral, Target 5300p, +13% (28 Jul)
Average Target: 5039p, +7% (1 Sep)
Bearish: RBC Capital Markets, Underperform, Target 4000p, -15% (5 Aug)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 Sep. Please contact us for a full, up to date rundown.

Page: 02

Royal Dutch Shell (RDSB) / Integrated Oil & Gas

Royal Dutch Shell PLC - B (LSE) (-)
Will shares break down below support at 1900p or rally back to the highs of 2150p?

  • Shares have support at a rising trend line and the floor of their Aug trading range
  • Directional indicators diverging bearishly
  • RSI testing 12-month rising lows

Broker Consensus: 52% Buy, 43% Hold, 5% Sell

Bullish: Barclays, Overweight, Target 2600p, +37% (1 Sep)
Average Target: 2206p, +16% (1 Sep)
Bearish: Canaccord Genuity, Hold, Target 1550p, -18% (20 May)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 Sep. Please contact us for a full, up to date rundown.

Page: 03

Barclays (BARC) / Banks

Barclays PLC (-)
Will shares break down below support at 168p or rally back to the highs of 187p and beyond?

  • Well defined uptrend since late June
  • Directional indicators diverging bullishly
  • Momentum falling highs since end-May
  • Stochastics overbought

Broker Consensus: 52% Buy, 43% Hold, 5% Sell

Bullish: Grupo Santander, Buy, Target 268p, +54% (26 Apr)
Average Target: 165p, -5% (1 Sep)
Bearish: Bernstein, Market Perform, Target 110p, -37% (2 Aug)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 Sep. Please contact us for a full, up to date rundown.

Page: 04

Next (NXT) / Retailers

Next PLC (-)
Will shares break down below support at 5510p or rally back to the highs of 8063p?

  • Shares testing 5-month resistance level
  • Directional indicators diverging bullishly
  • 5-month rising lows on RSI, Momentum & Stochastics
  • MACD making a bearish cross

Broker Consensus: 19% Buy, 48% Hold, 33% Sell

Bullish: AlphaValue, Buy, Target 6955p, +25% (1 Sep)
Average Target: 5135p, -8% (1 Sep)
Bearish: HSBC, Hold, Target 4485p, -20% (4 Aug)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 Sep. Please contact us for a full, up to date rundown.

Page: 05

Barratt Developments (BDEV) / House Builders

Barratt Developments PLC (-)
Will shares break down below support at 471p or rally back to the highs of 650p?

  • Shares nearly back inside the 2015 falling channel
  • Directional indicators converging bearishly
  • Stochastics & RSI testing their 2-month uptrends
  • Stochastics still overbought

Broker Consensus: 47% Buy, 47% Hold, 6% Sell

Bullish: Whitman Howard, Buy, Target 707p, +42% (31 Aug)
Average Target: 507p, 1.5% (1 Sep)
Bearish: Liberum, Hold, Target 350p, -30% (1 Sep)


N.B. All pricing and consensus data was sourced from Bloomberg on 1 Sep. Please contact us for a full, up to date rundown.

Page: 06

How can you take advantage of these potentially attractive share price moves?

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.

CFDs: Like shares, but more flexible

StockbrokingCFD Ticket


Figure 1: Buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (box above left), while the same exposure via a CFD requires about £500 plus commission (see above right). If a trader invests in British Land, one would assume she believes the share price is likely to move in her 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 the BLND shares - some of that capital could be put to good use elsewhere in the markets.

CFDs are leveraged instruments, but you don’t have to use the leverage

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 just £500 (note that overnight financing costs will still apply). The remaining £9,500 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!

What’s your view?

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 click here.

Page: 07

The Accendo Markets Research Offering

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? What about what’s happened overnight?

We’re 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’s 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’ll tell you why the shares are called to open up or down in relation to that announcement.

We don’t simply tell you which macro-economic data prints are due at what time, we break each driver down so that you fully understand what it all means. What are the expectations in relation to the historic trend? How will this affect the trading day ahead?

The journalists don’t pay for it and neither do you, so why not give it a go? You’ve nothing to lose and perhaps a little more to gain.

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How Accendo Markets can help you

We won’t tell you what to do - it’s your call whether you buy or sell. Our aim is to provide the help you need, if you need it. We’ll highlight opportunities which may be profitable to you, the investor, and assist you in making your own trading decisions. Our approach focuses on these 3 elements:

  1. Education - not obligation
  2. Observations - not recommendations
  3. Assistance - not persistence

Our unique, award-winning service provides you with the help and tools you need to make appropriate trading decisions in the financial markets, both to grow and protect your capital. Just imagine how you’ll feel when you’re confident enough to make you own investment and trading decisions, rather than blindly following those of an expensive advisory broker who really has no better chance of calling the market than you anyway.

Before taking a position in the Index or Stocks, be sure to contact Accendo for…

  • Updates - How does the index or your preferred stock look in terms of investor sentiment? News and broker updates can emerge daily affecting share prices. Optimism can switch to pessimism in the blink of an eye depending on what’s going on around the world.
  • How to use CFDs and Spread Bets to maximise your profit potential.
  • How to use the tools available to minimise the risk involved

Page: 08

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

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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