Antofagasta led the way last night as the FTSE 100 rounded off its best week in a year. The Chilean copper miner rose by 34.5p to 886p, while its sector peer Anglo American gained 10p to 2,422p after Goldman Sachs advised investors to pile in ahead of a surge in metals prices.
The broker said it expected commodity markets to climb as levels of economic activity in China "start to stabilise and then recover later this year and early in 2011".
"We would use current market concerns to build positions in our preferred mining names in advance of an expected pick-up in economy activity in the fourth quarter of the year, and with that pick-up, we expect to see metals prices rise, driving share prices up with them," Goldman explained, lifting the mood across the sector.
While naming Antofagasta and Anglo American as its top picks, the broker reiterated its "neutral" view on Kazakhmys, which was 27p stronger at 1,088p, and Xstrata, which closed at 943.6p, up 7.6p. Goldman was less keen on Randgold Resources, the gold producer, which lost 20p to 6,225p after the broker issued "sell" advice, arguing that the stock was "pricing in the bulk of the value of its growth projects".
"We are concerned that should there be evidence that one of the four projects under development should start to slip behind budget or schedule, the shares could react badly," the broker said, abandoning its "neutral" view on Randgold.
Goldman also turned more cautious on Hochschild Mining, the FTSE 250-listed precious metals group, which was 11.5p lower at 306.6p last night. "The underlying Hochschild operations currently trade at a significant discount to peers," the broker said, lowering the stock to "neutral" from "buy". "However, we see limited potential for an unwinding of this discount until the company's intentions regarding the long-term structure of the group are clarified. We do not expect this to occur until after its standstill agreement with Lake Shore Gold (LSG), preventing ownership above 40 per cent in LSG, expires [in November this year]."
Overall, the markets remained firm, with the FTSE 100 adding another 27.49 points to close at 5,132.94 and the FTSE 250 gaining 26.6 points to end the session at 9,745.79. The benchmark is up by more than 6 per cent since trading commenced on Monday, its best weekly showing since July last year. Yesterday's strength was pinned on the read-across from the US, where investors cheered positive jobless claims figures. Volumes remained low, however, indicating that traders were opting to remain on the sidelines until there is more clarity on the world economic recovery.
The medical devices manufacturer Smith & Nephew rose by 23p to 607p thanks to bargain hunting, while the engineering group Invensys closed at 267.6p, up 8.8p, after Collins Stewart weighed in with some words of support. The broker said that while investors were justified in worrying about the possible impact of austerity measures on rail spending – particularly in the company's core Spanish market – only 14 per cent of the company's two year order backlog seemed to be at risk. "Much of Invensys's work is ring-fenced, and around half the backlog relates to new growth markets," the broker added, repeating its "buy" recommendation.
Also on the upside, the banks were broadly higher. Lloyds led the way, adding 1.01p to 61.71p even as analysts played down the implications of Thursday's reports of a new bank cash shell being set up by Lord Levene. "We've seen in the past that it is very hard for new entrants to gain scale in the banking sector," Seymour Pierce said. "For instance, when it come to [the] RBS branch disposal programme, 5 or 6 different buyers were touted in the media... But ultimately, it appears Santander, which already has scale ... was the sole bidder."
Elsewhere, the homewares retailer Dunelm was 9.3p ahead at 352.8p following a push from Numis, whose analysts revised their view to "buy" from "hold". The broker said that while the company is likely to see a "tougher end" to its financial year, this was already reflected in forecasts, adding: "Moreover, Dunelm is one of the few genuine growth stories in the sector, with a medium-term superstore target of 150 to 200 ... well ahead of the current 92."
Further afield, Bank of American Merrill Lynch lifted the mood around William Hill, the bookmaker, which rose by 3.4p to 179.1p after the broker switched its view to "buy". "We regard continuing strong trends in online and an improvement in machines as key catalysts for the stock in 2010, with the World Cup providing an additional boost," the broker said, abandoning its "neutral" stance while keeping its target price unchanged at 210p.
Merrill was also upbeat about sector peer Ladbrokes, which rose by 2.3p to 134.7p after the broker repeated its positive view. "The advent of live betting combined with a run of surprise outcomes in this World Cup should provide a better gross win contribution for Ladbrokes versus the last time," Merrill said, adding that the twists and turns should also provide an excellent opportunity to recruit new customers for its eGaming division.
FTSE 100 Risers
ARM Holdings 295.5p (up 5.1p, 1.8 per cent)
Gains ground as speculators revisit bid theories, tout theories of interest from Apple.
Standard Life 190.6p (up 3.7p, 2 per cent)
Recommendation revised to "hold" from "sell" at S&P Equity Research.
Man 219.7p (up 1.3p, 0.6 per cent)
UBS says it remains positive, reiterates its "buy" view and 310p target price.
FTSE 100 Fallers
British Land 447.5p (down 9.1p, 2 per cent)
Retreats after going ex-dividend; takes the wooden spoon on the FTSE 100.
Segro 269.7p (down 4.5p, 1.6 per cent)
Target price reduced to 300p from 345p at Bank of America Merrill Lynch.
Old Mutual 112.5p (down 0.6 p, 0.5 per cent)
Loses ground amid profit-taking following Thursday's gains as Nedbank bid talk fades.
FTSE 250 Risers
Bodycote 217.6p (up 26.9p, 14.1 per cent)
Rallies after issuing a trading update; target price upped to 286p from 275p at Evolution.
Connaught 113.3p (up 2.2p, 2 per cent)
Recovers as chairman Sir Roy Gardner buys 50,000 shares in the company.
Bovis Homes 354.5p (up 5.7p, 1.6 per cent)
Posts a trading statement; investors welcome intention to resume dividends.
FTSE 250 Fallers
Bellway 612p (down 12p, 1.9 per cent)
HSBC initiates coverage with an "underweight" recommendation, 525p target price.
Berkeley 827p (down 6p, 0.7 per cent)
HSBC initiates coverage with a "neutral" recommendation, 823p target price.
Imagination Technologies 307.1p (down 1.6p, 0.5 per cent)
Comes under pressure amid profit-taking following Thursday's gains.Reuse content