Sector movers: JP Morgan retains Diageo as its top-pick despite rise in bond yields

Cigarettes and booze found a bid on Wednesday as investors sought refuge in those two defensive sectors on a risk-off day more generally for financial assets globally, amid gyrations in metals markets which some market commentary linked to wider uncertainty surrounding the outlook for China's economy but also US policy-making.

Against that backdrop, stock in British American Tobacco was able to move back above its 200-day moving average, with which it had been flirting over the past few weeks. Shares of Imperial Brands on the other hand, while higher on the day, were trading comfortably beneath their own.

Yet what is a cigarette without a drink to go with it, investors seemed to be thinking as they reached out for other so-called 'sin stocks'.

That saw shares of Diageo make a push towards their 52-week highs, helped no doubt by a positive endorsement from analysts at JP Morgan - albeit with a caveat.

Regarding the sector as a whole, JP Morgan pointed out how moving into 2018 Beverages were trading at a lofty price-to-earnings growth (PEG) multiple of about 2.0.

Although that was below its recent peak (going into 2016 it was at about 2.6), shares in the sector were also changing hands at an estimated calendar year 2018 price-to-earnings multiple of roughly 22.2, the investment bank said.

On that note, JP Morgan did caution there was scope for a de-rating as bond yields moved higher.

"High sector valuation of 22.2x CY18E P/E is backed by robust growth but remains vulnerable to rising bond yields," it said.

Hence its preference for those stocks with earnings momentum, like Diageo, which was its 'top-pick' in the sector.

"The changing global consumer landscape and rapid rise of digital should continue to shape sector debate, in our view. We see Diageo as the key winner, with its dominance in Scotch and ability to invest for top-line growth."

Top performing sectors so far today

Tobacco 54,293.12 +3.26%
Food & Drug Retailers 3,190.04 +1.27%
Beverages 21,082.23 +1.18%
Household Goods & Home Construction 17,672.42 +0.99%
Aerospace and Defence 4,822.38 +0.73%

Bottom performing sectors so far today
Oil Equipment, Services & Distribution 12,729.27 -3.03%
Software & Computer Services 2,284.21 -1.12%
Banks 4,378.64 -0.67%
Electricity 7,692.40 -0.52%
Real Estate Investment Trusts 2,927.58 -0.44%