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Growth scarcity sees eight UK firms in Berenberg’s new Nifty Fifty
Thursday 04 Oct 2018 Author: Steven Frazer

An increasing scarcity of companies capable of delivering sustainable, quality growth has led analysts at investment bank Berenberg to revisit the Nifty Fifty concept popularised in the 1960s and 1970s.

There are eight London-listed stocks that have made the cut to feature on the bank’s European contemporary list: Ocado (OCDO), Hargreaves Lansdown (HL.), Just Eat (JE.), NMC Health (NMC), Rightmove (RMV), Dechra Pharmaceuticals (DPH), St James’s Place (STJ) and Sage (SGE).

The Nifty Fifty was originally a select group of US stocks. They qualified on the basis that they were able to produce consistent growth even during times of market distress and uncertainty, earning them a reputation as ‘one decision’ stocks, meaning you buy them and never sell.

Concerns have started to build for investors over recent months thanks to rising interest rates on both sides of the pond, economic worries in the Eurozone and emerging markets, Brexit confusion and share price valuations.

This has led to claims of polarisation of stock performance, with a relatively small number of strong performing share prices driving the lion’s share of stock market returns, particularly in the US. The S&P 500’s five largest companies – Apple, Alphabet, Amazon, Facebook and Microsoft – account for around 16% of the entire index.

Berenberg’s latest analysis suggests that revenue growth is a more reliable guide to future share price returns than earnings. This is largely because of the potential for earnings to be manipulated, such as unsustainably cutting operational costs to bolster earnings per share figures.

‘In particular, companies re-rate when they deliver over 4% revenue growth, the minimum to cover inflation in input costs and in product or service functionality,’ says Berenberg.

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