As investors debate whether the next move in markets is up or down, it’s worth noting that there are a group of stocks which are quietly making new 52-week and multi-year highs and even a few making new all-time highs.

While some are involved in special situations, such as bid talks, and some are related to the unprecedented surge in energy prices, the most interesting from our point of view are those which are making highs purely due to the performance of their business.

BIDS ARE BACK

After a quiet start to the year, there has been a marked upswing in M&A (merger and acquisition) activity in the UK especially among companies in the mid-market.

Leaving aside FTSE 100 cyber security specialist Avast (AVST), most of the recent bid targets – global information provider Euromoney (ERM), home emergency and repair firm Homeserve (HSV), healthcare facilities owner Mediclinic (MDC), infrastructure software company Micro Focus (MCRO) and business service group RPS (RPS) – have come from the FTSE 250 index.

Another feature they have in common is – and this time we can include Avast – the buyers are all foreign entities, most of them privately-owned.

Avast is being acquired by US rival NortonLifeLock, Euromoney is being bought by a consortium led by a Luxembourg-based private equity firm and Mediclinic has been snapped up by a South African holding company together with a Swiss/Italian container company, while Homeserve, Micro Focus and RPS are all going to Canadian buyers.

While the low valuation of UK stocks is undoubtedly one factor, the weakness of the pound against the US dollar in particular is likely another.

ENERGY TAILWIND

Another group of stocks making new highs are those riding the wave of higher gas and electricity prices, with both ‘old economy’ and ‘new economy’ companies making hay while the sun shines.

Front and centre of the energy winners is the behemoth BP (BP.), whose shares have been on an upward march since late 2020 and have just hit a two-year high.

Rival Shell (SHEL) also bottomed out in late 2020 – which on reflection was around the time the first anti-Covid vaccine was announced and the penny dropped the world wouldn’t completely grind to a halt – and made its own two-year high in June.

Meanwhile, a clutch of smaller E&P (exploration and production) companies are also making new year- or multi-year highs including Angus Energy (ANGS:AIM), Indus Gas (IND:AIM), Kistos (KIST:AIM) and Serica Energy (SQZ:AIM), which recently rebuffed a bid approach from newly-listed Kistos.

At the same time, ‘new energy’ stocks are also enjoying a strong run as electricity prices hit unheard-of levels, including Bluefield Solar Income Fund (BSIF) and NextEnergy Solar Fund (NESF), which have performed so well since the start of the year they are about to be promoted from the FTSE Small-Cap Index to the FTSE 250 Index.

It’s a similar story for JLEN Environmental Assets (JLEN), Gore Street Energy Storage (GSF) and Gresham House Energy Storage (GRID).

SPECIAL SAUCE

However, the most intriguing stocks are those which are making new highs purely on the strength of their underlying business without any help from foreign bidders or the squeeze in energy prices.

Whether it be a dominant market share, a must-have component or some other commercial advantage, these firms clearly all have a ‘special sauce’ which sets them apart from their competitors.

The largest is drug giant AstraZeneca (AZN), which has had such a good year its shares recently hit an all-time high meaning it has replaced Shell as the largest company in the FTSE 100 index.

As we flagged in April, AstraZeneca has made a string of well-received announcements ranging from the approval of existing drugs for new treatments to positive results from clinical tests of its new drugs.

Also, as predicted several months ago, the good news has continued with the release of several more positive drug updates, first-half earnings which beat forecasts and an increase in full-year revenue expectations.

Among the smaller companies whose shares are hitting new highs, four stand out to us: Braemar Shipping Services (BMS), Equals Group (EQLS:AIM), H&T (HAT:AIM) and Wilmington (WIL).

Braemar is riding the wave of higher shipping rates for everything from coal and gas to grain, as well as a tight market for second-hand ships, but its success is no accident.

Since taking the helm in January, chief executive James Gundy has cut debt, disposed of non-core, low-margin businesses and invested in growth, exactly as promised.

Meanwhile, fintech payments group Equals Group has enjoyed stellar growth in revenues as more small and mid-sized companies sign up to its offering and has raised its guidance several times this year.

While it continues to hire key talent to grow, its asset-light model and revenue mix means gross profit margins are trending towards 50% which is extremely attractive.

Jumping from cutting-edge fintech to one of the oldest trades in the world, H&T – which started more than a century ago with shops in Lambeth, Vauxhall and the Old Kent Road – is the UK’s largest pawnbroker, and its services have never looked more in demand than they do at this moment.

With consumers hard-pressed to make ends meet, H&T’s ability to offer small, short-term asset-backed finance has seen its pawnbroking revenue climb by nearly a quarter already this year.

Lastly, regulatory compliance solutions provider Wilmington has enjoyed a resurgence of face-to-face events and presentations since the start of the year, especially in the US.

On top of face-to-face events, demand for online training in governance, risk and compliance meant solid growth in organic revenues across the group in the 12 months ended in June.

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