Shares digital

Given the current high market volatility and the remains risk of further declines, any portfolio should seek some exposure to solid large companies likely to return a good dividend stream and capital appreciation longer term.

This leads to an assessment of the FTSE 100 constituents with a nod to the O’Higgins stock selection method. But, with my charting cap on, this week I try to find three stocks currently offering a better yield than the market average (3.33%), prospective dividend yields above what you could expect from a high-interest bank account and signs on their respective charts indicating potential for capital gains: the icing on the cake.

Yell (YELL)

I don’t understand the market’s attitude to the Yellow Pages publisher. Surely such advertising is essential for most small businesses and so pretty much immune to cancellation even in hard times, yet the shares currently trade on a prospective yield of 5.15%. The chart shows the shares have declined sharply over the past year, and recently virtually tested their all time low of 276p, a level not seen since 2003, the year they floated – in the process losing more than half their value in just under a year. Of particular interest recently has been the sharp rise in volume coincident with what appears to be a spike low sell-off that hopefully marks the culmination of the selling. Certainly we can see clear bullish momentum divergence; and a recovery back toward 400p, a level seen at the end of 2007, is looked for. This will require successful negotiation of resistance from the convergence of the declining 50-day average and congestion close to 375p. Longer term, look for moves toward 462p via 420p.

BUY at 332p • Stop loss 314p • Target 420p

Taylor Wimpey (TW.)

A correction was probably justified, but why the huge sell-off in many house builders? Consider Taylor Wimpey’s fundamentals. It’s currently on an 8.23% prospective yield covered over two-times and on a projected PE of 5.4, yet the structural shortfall in new houses must mean such companies can look forward to demand for the foreseeable future. But the chart shows the shares have tanked since last April, losing over 70% of their market cap. Again we can see recent lows achieved by a sharp sell-off and that an increase in volume accompanied the bottom at 153p. This is likely to be a graphical representation of capitulation by weak holders as they are shaken out and their stock is amassed by those who see the selling as a buying opportunity. The good volume on the rise confirms this impression and the move above the bear trendline and 50-day average on the back of previous momentum divergence adds weight to the bullish call. Look for a move above significant historical resistance near 224p to allow gains toward obvious resistance at 300p.

BUY at 194p • Stop Loss 176p • Target 300p

BT (BT.A)

Though increasingly competitive, fixed-line telecoms is likely to resist a general economic contraction better than most, when did you last hear of people taking out their phones or broadband connections? At the height of the dot.com bubble, BT hit £11, only to decline to 141p three years later by March 2003. Recovery has been more pedestrian and is still shy of any meaningful retracement level of that decline. Dominated by quite a wide bull channel over the past four-plus years, the shares are also affected by enduring support and resistance at 295p and 237p. The 25% sell-off since last summer resulted in a break below the former in late 2007 and has seen the shares last week drop to try to test the latter as the channel baseline is pressured. Though this might be something of an early call, I suspect that 237p will not be broken through, not least because the shares currently offer a prospective yield of some 6.1%. It nevertheless offers a superb close-by protective stop.

BUY at 256p • Stop Loss 236p • Target 320p