LONDON -- You know it's a bull market when 46 companies in the FTSE 100 are trading within 3% of their high for the year.
Here are the 10 of those 46.
P/E (2013 forecast)
Yield (2013 forecast)
Market Cap (millions of pounds)
British American Tobacco
Five stood out in particular.
1. Unilever (LSE: ULVR )
Consumer brands companies are prominent in my top 10, and Unilever owns some of the foremost food and domestic brands. The Anglo-Dutch giant is behind Lynx, Domestos, Magnum, and Hellmann's. These brands and their recognition with consumers means that Unilever products sell in large numbers. This gives Unilever economies of scale, meaning that the company can make a larger percentage profit at the same retail price. Pricing is helped further by the fact that, to many retailers, Unilever's products are "must stock" items.
Unilever shares are not just at a high for the year; they currently trade at an all-time high.
With 1.77 euros in earnings per share forecast for 2014, Unilever shares trade at a premium to the rest of the market. However, that premium is well justified. I would not be surprised if the shares continued to make new highs in 2013.
2. Diageo (LSE: DGE )
Just like Unilever, Diageo owns brands that shops and bars must stock, e.g., Smirnoff, Guinness, Captain Morgan, Baileys, and Jose Cuervo, to name a few.
Similar to Unilever's, Diageo shares have also been making new highs recently. In the last year, the shares are up 31.1%. So far in 2013, they have advanced 10.4%. That's a pretty sharp rise for a 50 billion pound blue chip. The share price movement at Diageo shows that it is possible to make big, quick returns on large caps.
For 2013 and 2014, earnings growth at an average rate of 10.8% a year is forecast. Dividend growth is expected at a similar rate. With the forecast 2013 yield on the shares now down to 2.4%, some investors are worrying that Diageo has become overpriced.
3. SABMiller (LSE: SAB )
There's not much between SABMiller and Diageo. Like Diageo, SABMiller owns big beer brands: Grolsch, Peroni, Pilsner Urquell, and Miller Genuine Draft are just four.
Like Diageo's, SABMiller shares trade at an all-time high. The shares are also on a high valuation: The 2014 price-to-earnings ratio is 18.5, with a forecast yield of 2.3%. SABMiller is forecast to grow earnings and dividends faster than Diageo. For the next two years, 13.8% in average annual EPS growth is expected. This is forecast to be met by dividend per share growth of 11.6% per year.
There is little point agonizing between SABMiller and Diageo. If you are happy to pay the premiums that the market is demanding, just buy both.
4. Reckitt Benckiser (LSE: RB )
Like Unilever, Reckitt Benckiser owns a portfolio of household name brands. Harpic, Calgon, and Dettol are all Reckitt Benckiser products. The company also owns Brasso, Gaviscon, and Mr Sheen.
The strength of RB's brands has helped the company to increase its dividends to shareholders by an average of 19.5% per annum over the last five years. That growth is expected to decline for the next two years. Earnings growth is also expected to be slower than it has been in the past.
On a 2014 P/E of 16.4, the valuation is neither cheap nor particularly expensive. Reckitt Benckiser's products are often household must-haves. There is little chance that RB could ever make a loss, meaning that the possibility of shareholders being wiped out anytime soon is near zero.
5. Tesco (LSE: TSCO )
Tesco was one of the most discussed shares of 2012. Following a profit warning at the beginning of last year, the company has been regaining investors' confidence. The result is that the shares are up 16.9% in the last 12 months.
Tesco has the longest record of successive dividend increases in the FTSE 100. Although the dividend was held at the interim stage, improved trading since then means that another increase for 2013 is likely. Tesco trades at a smaller P/E discount to the average FTSE 100 share. That shouldn't be too surprising: There is little room for substantial growth in its core U.K. market, and Tesco has slipped up recently.
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