Mining, Banks and Pharma: Investors' Top 10 Favourite Stocks

Which equities are Morningstar readers interested in? Topping the charts are banking, energy and mining stocks - those equities which have been struggling in recent months

Karen Kwok 3 March, 2016 | 9:06AM
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Investors’ favourite stocks can be found in the banking, oil and gas, mining and pharmaceutical sectors, according to Morningstar.co.uk data.

Banks’ Recent Ups and Downs Piqued Interest

It is no surprise that banking stocks are among the most searched for stocks on Morningstar.co.uk last month, given the slew of disappointing news from European banks.  Lloyds Bank (LLOY) is the top stock for Morningstar readers, but its underlying results were a welcome surprise.

Although the bank lost £171 million of common shareholders' money in the second half, other figures, such as a rising net interest margin and ultralow loan losses, were much more encouraging, Morningstar analyst Erin Davis says. Perhaps most encouraging of all was the increase in the full-year regular dividend to £2.25 per share plus the announcement of a 50p special dividend. The stock is currently rated as undervalued by Morningstar analysts.

However Barclays’ (BARC), which is fifth on the most popular hit list, fourth-quarter results and refreshed strategy were full of disappointments, Davis says. Barclay has a history of reliance on investment banking, which Morningstar analysts view as a particularly risky activity, with potential losses that could easily overwhelm the earnings power of the group. Davis was disappointed that there were no further cuts to Barclays investment bank. The stock currently yields at 4.4%. Its shares lost 0.73% year to date.

HSBC (HSBA) also grabbed investors’ attention last month as, after much toing and froing, it decided to remain its headquarter in the UK. HSBC will benefit from improving conditions in the UK, its largest European market and one of Europe’s strongest countries, Davis says. The stock yields at 7.09%. Its shares have lost 1% year to date.

Oil and Mining Sectors Top the Charts for Equity Investors

The future of oil remains an unknown and investors will certainly have to continue to keep a close eye on the sector. Royal Dutch Shell PLC (RDSB), BP PLC (BP.), Glencore (GLEN), Centrica PLC (CNA), Anglo American PLC (AAL) and 88 Energy Ltd (88E)dominate the top 10 most popular securities last month.

Yields continue to look attractive due to supressed share prices: Shell pays an income of 7.5%, Glencore yields at 8.5% and Anglo American pays dividend at 10.9%.

Investor sentiment on Shell today remains negative after years of poor execution, Morningstar analyst Stephen Simko says. If new CEO Ben van Beurden can shake things up enough to where Shell operates in line with its peers, it could prove to be a material near-term share catalyst.

Although Glencore ranks among the most diversified of the global miners, diminished Chinese demand will weigh heavily on the profitability of Glencore’s mining segment, Morningstar analyst David Wang says. Although Glencore delivered good progress on its debt reduction efforts in 2015, Wang continues to expect that the marketing division will not perform as well as management’s optimistic guidance would suggest in the long run. The stock is rated as an overvalued stock.

Minnow stock 88 Energy Ltd (88E) stands apart from the big energy companies on the list, with a market cap of just £70 million. The company explores oil and gas resources in Australia and Morocco. It projects include Tarfaya Offshore Block in Morocco. Shares in 88 Energy rose more than double in mid-February after the company said its ongoing project at the Icewin-1 is consistent with its pre-drill estimates, and it grabbed much of investors’ attention.

Speedy Growth in Pharmaceutical Industry

Pharmaceutical industry has grown rapidly in recent years and as one of the largest companies in the pharmaceutical industry, GlaxoSmithKline PLC (GSK) is at a competitive position. The stock, which yields at 5.75%, is considered undervalued by Morningstar analysts.

Morningstar analyst Damien Conover thinks that the company has a particular strong branding power in the consumer division that offers a solid complement to the patent protection in the pharma group. GlaxoSmithKline reported solid fourth-quarter results largely in line with Morningstar analysts’ expectations. The stock has gained 1.03% year to date.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk