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It’s always interesting to take a look at Hargreaves Lansdown’s ‘Top of the Stocks’ page. This highlights the shares the firm’s customers were buying the most in the previous week. Last week, three of the most bought shares were BP (LSE: BP.A), Phoenix Group (LSE: PHNX) and Rolls-Royce (LSE: RR.). So what’s been driving investors to these names?
BP
I’m not surprised investors have been piling into BP. Late in September, the shares experienced a sharp fall. Meanwhile, oil prices shot up last week on the back of the escalating geopolitical conflict in the Middle East.
I don’t have any plans to buy the shares however. For me, they’re just too unpredictable. If oil prices continue to rise, BP’s share price is likely to climb. However, if oil prices drop, the shares could experience further weakness.
One other issue for me is that the company doesn’t seem to have a clear strategy. A few years ago, BP said that it was going all-in on renewable energy. Today however, the company appears to be scaling back its energy transition strategy. According to a recent Reuters report, it’s now targeting several new investments in the Middle East and the Gulf of Mexico to boost its oil output.
It’s worth pointing out that the shares are cheap. And there’s a decent dividend yield on offer (5.7%). As a long-term investor however, I think I can do better than BP.
Phoenix Group
Moving on to Phoenix Group, it experienced a pullback in the second half of last week. And investors clearly saw this as a great opportunity to buy the high-yield dividend stock (the yield today is 10.5%).
It’s worth looking at why the share price fell however. It seems to me that the driver of the weakness was a downgrade from UBS. In a note to clients, the firm downgraded Phoenix Group from Buy to Neutral and lowered its share price target to 530p from 610p. “Low solvency and high leverage remain risks to the investment case“, they wrote.
While debt here’s a risk, I might consider this stock if I was seeking income from my investments. Dividend coverage is low, which isn’t ideal. Yet the company’s generating plenty of cash. So the payout should be secure in the near term.
Rolls-Royce
Finally, it’s no surprise that investors were buying Rolls-Royce as this has been one of the most bought stocks for years now.
Now, I can understand why investors were piling into this stock two years ago when it was trading below £1. But today, the investment case isn’t so clear to me.
Yes, the company’s profits are rising rapidly, thanks to a brilliant business transformation from CEO Tufan Erginbilgiç. But a lot of success appears to be priced into the stock already.
At present, the forward-looking P/E ratio here’s 29.5, falling to 25.1 using next year’s earnings forecast. These are high multiples and they don’t leave much room for error (eg engine problems or an aviation slowdown).
Of course, the share price trend here’s clearly up. And trends can persist for a long time. For me though, the risk/reward proposition here isn’t enticing. Given the valuation, I think there are better shares to buy for my portfolio.
