Are Shell, Glencore & BAE Systems Still Top Momentum Picks?

22nd Nov '22 by Roland Head

4 comments 2416 reads

The momentum screen I built last week highlighted energy giant Shell, commodity group Glencore and defence contractor BAE Systems as potential momentum plays.

All three companies have certainly benefited from strong momentum over the last year. But is this thesis still valid? This week I want to take a fresh look at these firms, to follow up on our coverage earlier this year:

BAE Systems (LON:BA.) - reviewed on 12 April 2022
Shell (LON:SHEL) - reviewed on 2 August 2022
Glencore (LON:GLEN) - reviewed on 24 August 2022

Before I do that, I think it makes sense to check in quickly on conditions in some of the key markets in which these businesses operate.

Oil: The price of Brent crude oil has fallen by nearly 10% to under $90 per barrel over the last week. US WTI crude oil is now under $80, after a similar fall.

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Source: IG

Other commodities: More broadly, the last year has seen the price of iron ore return to pre-pandemic levels.

Source: IG

Copper, natural gas and gold are also well down from their pandemic highs, although they remain elevated compared to 2019.

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Source: IG

Inflation: lower energy costs appear to be feeding into inflation data. US inflation fell to 7.7% in October – the fourth consecutive month of decline.

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Source: Statista

Ukraine: The war in Ukraine is continuing, but fears of escalation appear to have eased, despite Western powers’ continued commitment to provide military supplies.

Normalising? Dare I say it – but market conditions may just be starting to normalise. On this basis, it seems like a good time to revisit these popular FTSE 100 stocks.

Recent trading updates have remained positive, but if market conditions are changing, can these stocks really still have strong momentum today?

BAE Systems (LON:BA.)

Summary: Defence contractor with activities including shipbuilding, aircraft and cyberwarfare. BAE’s three largest markets by revenue are the USA (2021: 43%), UK (20%), and Saudi Arabia (12%). Together, they account for 75% of sales.

Recent trading & outlook: BAE recently announced that it had been awarded a £4.2bn contract to build a further five Type 26 frigates for the Royal Navy.…

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Brookeda

22nd Nov '22

Thanks, Have been an holder of BAE Systems (LON:BA.) for a couple of years and having been thinking through over the last 3 months whether to continue to hold or cash in. You have given me some things to contemplate for sure :-)

Peter171

Hi Roland,

I have been in and out of Glencore (LON:GLEN) over the years . It has changed its spots and I regard it as an international trader, and like all traders they will have good years and bad years. I am now running a FTSE Dogs portfolio and Glencore (LON:GLEN) is part of it and top of the league at the moment. Yes it is high risk but high reward (hopefully) and am comfortable with it.

Roland Head

24th Nov '22

Hi Peter,

I agree that Glencore (LON:GLEN) seems to be evolving as a business - the trading operation does seem to be able to deliver fairly stable profits in most years.

I think that cyclicality will remain an important factor, but timing this is not an easy task. Glencore does appear to be trading well at the moment and these positive tailwinds could persist for longer than expected.

Good luck with your FTSE Dogs portfolio, it sounds interesting, given the high yields available at the moment.

Regards,

Roland

Mark Carter

7th Apr '23

Just wanted to add my own perspective on BAE Systems (LON:BA.) Momentum can be a good thing sometimes, and it's worth bearing in mind that it can go on longer than you think.

What's interesting to consider is if you bought AFTER the news. Suppose you were a complete butter-fingers with your trading, and you bought at 750p. The price stands at 1012p today. So you would still have been making decent returns on your money.

Sure, BA is not a great company, but the quoted PE that show is not racy. So you could reasonably hold given the bull case. It stands at a PE of 16.7 now, which is above average, but not excessive. Remember, in Feb BA announced a record order intake. I figure that the conflict is a wake-up call that NATO countries need to spend more on defence.

I currently hold, as I think the set-up warrants it.

Are Shell, Glencore & BAE Systems still top momentum picks?

BAE Systems (LON:BA.)

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Roland Head

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