This article is part of Morningstar’s Guide to Investing Ideas for 2016, click here to get your financial health in order with some new year’s resolutions for your portfolio.
Want to take a bet on who you think is the biggest riser in the FTSE 100 for 2015? Thanks to the approval of a £5 billion merger between two betting giants, Paddy Power (PAP) tops the list as the FTSE 100 stock with the biggest gains in 2015. The shares jumped more than 80% in price over 12 months, with the bulk of the gain following the news in August that Paddy Power was to merge with Betfair.
These sorts of gains are a one-off – investors in Paddy Power would be foolish to expect a repeat performance in 2016, but it does prove the positive effect of M&A on share prices and the market in general.
After all, it is a market that could do with some good news. 2015 was the worst year for the FTSE 100 since 2011; tumbling commodity prices dragged down the oil giants that make up a sizable proportion of the index, and troubles in emerging markets battered the rest.
“Even the modest upside gains predicted failed to be delivered as once again the structure of the main indices and the earnings collapses recorded by a number of key sectors, namely oil and gas losing 46% and mining down 42% held back the indices,” wrote Morningstar’s head of investment strategy Andy Brunner last month.
“Additionally, earnings per share fell elsewhere, it being a fairly dire year for food retailers down 35%, mobile telecoms down 29% and pharmaceuticals down 8%, all of which contributed to a 3% year to date capital fall for the FTSE 100.”
Household Names Boast Bumper Year
Kingspan (KGP); manufacturer of insulated panels, rigid insulation boards, architectural facades, raised access floors, engineered timber systems, environmental management systems, sustainable water and renewable energy solutions saw its share price almost double in 2015. While not exactly a household name – excuse the pun – this insulation company was boosted by two major acquisitions last year, Belgian company Joris Ide and part of US business, Vicwest.
Also appearing on the biggest risers list are homebuilders Berkeley Group (BKG), Barratt Developments (BDEV) and Persimmon (PSN). Berkeley shares rose more than 55%, Barratt rose 43% and Persimmon was up 31%.
Bronze-rated manager Steve Davies who runs Jupiter UK Growth said that housebuilder stocks were buoyed by the General Election result in May.
“The re-election of a majority Conservative government – one that had been supportive of housebuilders in the past – was positive for the sector, add to that very good results, house prices continuing to rise and substantial dividend payments and you can see why these are among the biggest risers,” he said.
Davies said that investors appreciated the discipline approach of these companies and the “solid stream of pay outs” amongst a wider UK stock market that struggled for growth.
Which Stocks Will Continue to Rise?
Broad themes which led to positive returns last year were: smaller companies outperformed larger stocks, domestically focussed companies did better than international ones and mergers and acquisitions – even just rumours of – boosted share prices.
This is the fourth year in a row that smaller companies have done better than larger ones Davies says, and as long as the economic recovery continues so too should that theme – with one potential raincloud on the horizon.
“The EU referendum holds two unknowns, when it will happen and what the outcome will be,” he said. “This is fly in the ointment for UK stocks. If the referendum happens early, say June, and the public vote to stay in the EU this will be positive for domestically focussed stocks.”
