Two Contra Stocks on LSE to Watch Amid COVID-19 Led Market Route: CMCX & IGG

There are different strategies of investing in the stock markets and investing through contra stocks is one of the strategies which had proved very beneficial at times. First, let us understand what a contra stock is, it is defined as a scrip whose performance usually go against the broader market trend. For instance, in a bear market, they will move up and outperform their benchmarks and peer companies’ stock performance.

Here in this piece of work, we are discussing two investment services stocks whose present performance is quite the opposite of the prevailing broader trend. They are edging higher amid market mayhem and are constantly registering new highs and trading well above their crucial short-term and long-term support levels.

CMC Markets PLC (LSE:CMCX)

London-headquartered CMC is a provider of the online and mobile trading terminal to both retail and institutional clients. Its trading platform allows clients to trade in over 1,000 financial instruments including equities, forex, commodity and indices. The company has a geographical presence in the UK and Ireland (UK & IE), Europe, and Australia, New Zealand and Singapore (APAC) and Canada.

Amid this sales season, the performance of CMCX stocks is completely in the opposite direction to the broader market trend. Its shares are up by ~ 45% on a year-to-date basis and have relatively outperformed its benchmark index by 18% in the same time, and on a YoY basis its shares have leapt up by 167% on LSE and significantly outperformed the benchmark index by ~ 232.86. This is a gigantic price-performance characterised by CMCX shares as a contra stock, soaring up despite a broader bearish market sentiment.

The business and decent financial performance of the company has taken its shares higher on the LSE. Recently, in the FY20 pre-closing trading update, the company reported that the total income generated from client transaction fees increased to £241m against £216m reported in a year-ago period. The decent performance of the company was driven by strong underlying performance in the business throughout the year.

Also, the company has a robust balance sheet or financial position and a comfortable liquidity position. Further, the company affirmed that its dividend policy of paying 50% of profit after tax as the dividend remains intact.

From the technical standpoint, CMCX shares have traded well above the short-term and long-term support level of 5-day, 10-day, 20-day, 50-day, 100-day and 200-day simple moving averages, which is a positive trend. Also, the price/200-day SMA ratio stood at 1.50x, which implies its shares have traded 50% above its long-term crucial support level. Typically, a price substantially higher than an underlying’s long-term support level reflects a strong uptrend in the scrip.

In the last one year, CMCX shares registered a 52-week high of GBX 227.90 on April 14, 2020, and a 52-week low of GBX 75.80 on May 16, 2019, and at last closing price of GBX 207.50 (April 29, 2020), it reflects that the stock was largely tilted towards its 52-week high price level, which is another favourable trend given the prevailing market condition.

IG Group Holdings Plc (LSE:IGG)

United Kingdom-based IGG is engaged in online trading. It provides a contract of difference (CFDs) in around 17 countries, including the UK, Australia, Europe, and ROW. The company derives its revenue from financial spread bets, CFDs, binary options and execution only stockbroking. The current outstanding market capitalisation of the company stood at £2.84bn, which ranks it among the mid-caps listed and traded on the LSE.

In the latest trading update filed by the company, it reported that, despite the high swings in the financial markets through March and into April’20, the company has continued to see high levels of client trading activity and further increases in the number of active clients as well. The company’s revenue in the first 36 trading days of the 61 in Q4 FY20 is estimated to be around £173m, which was about 24% higher against the Q3FY20 revenue of £139.8m.

Also, the company’s financial position remains very strong for the financial year ended on March 31, 2020, and the board reiterated that it expects to maintain the 43.2p/share dividend till the time the group’s earnings permit it to resume progressive dividends.

The sound financial performance of the company is enabling its shares to move up on the LSE amid the circumstances when there is steep across the board correction, and when many stocks of different sizes are hitting a multi-year low. On a YoY basis, shares of IGG have surged by ~ 47% and handsomely outperformed its benchmark index by 83.5% in the same duration. Also, on a YTD basis, its shares are sporting a positive price return of 10.4% (on April 29, 2020) and relative outperformance against the index stood at ~ 40% amid times when the broader financial markets grappling with COVID-19 led epidemic.

The stock has handed over a substantial return to its shareholder regardless of the prevailing economic cycles, IGG stocks at the last traded price featured a lucrative dividend yield of 5.6%, which makes it a dividend growth stock, which is uncommon given the market condition.

The outright opposite performance of its shares on LSE categorised IGG shares as contra stocks.

From the technical analysis standpoint, at the last closing price of GBX 793.0 (April 29, 2020), its share has traded well-above its short-term and long-term support level of 5-day, 10-day, 20-day, 50-day, 100-day and 200-day simple moving averages (SMAs), which is a positive trend. Also, the price/200-day SMA ratio stood at 1.24x, which implies its shares have traded 24% above its long-term crucial support level. Typically, a price well above an underlying's long-term support level reflects an uptrend and higher the gap - stronger the prevailing trend is.

IGG Shares hit a new 52-Week High of GBX 799.0 on April 29, 2020

Given the present market condition when a large proportion of stocks listed on LSE either hitting multi-year lows or oscillating near their 52-week low, shares of IGG registering new 52-week high at the same time. In a year-over period, its shares have touched a peak of GBX 799 on April 29, 2020, and a bottom of GBX 467.40 on May 21, 2019. And, at the last closing price of GBX 793, IGG shares were largely tilted towards the 52-week high, which is another positive trend in the stock.