How to identify FTSE 100 shares with unusually high trading volume

Certain metrics can be used to gauge when FTSE 100 stocks are experiencing heavy trading volume. High volume is often the result of some notable development, such as an earnings call.

Financial news sites are usually the go-to for punters keen on the latest juicy gossip. But while they’re useful to a degree, they typically only cover companies that promise attention-grabbing headlines.

In the investment world, some of the best opportunities are found in lesser-known companies that seldom make the news. That’s why it pays to know which stocks are experiencing unusually high trading activity at any given moment.

Understanding relative volume

Normal trading volume is a measure of how much money is changing hands for a certain stock. On the Footise, Lloyds is almost always at number one, with Vodafone, BP or Barclays near the top. Many such mega-cap stocks experience high volume even when nothing interesting is happening.

However, to find out which stocks are unusually popular in a given week, I check the relative volume (RVOL). This indicator calculates current volume in comparison to average volume over a certain period. A factor of 1 means it’s trading at the usual rate. Anything higher or lower indicates a discrepancy.

For example, if a stock is experiencing volume that’s 50% higher this week than average, its weekly RVOL will be 1.5. The timeframe can be anything from a minute to a month.

FTSE 100 stocks with high weekly RVOL

This week, the three Footsie stocks with the highest weekly RVOL were Melrose Industries (LSE: MRO) (1.68), Londonmetric Property (1.65) and Intermediate Capital Group (1.58). Londonmetric took a hit from BlackRock, which decreased its voting rights, and ICG got a boost after JPMorgan put in an Overweight rating on the stock.

But of the three, Melrose experienced the largest daily gains yesterday, up 6.45%. Those two metrics together tell me something big is happening at the aerospace and defence company.

Let’s have a look.

Missed expectations

Melrose released its FY2024 earnings data last week, leading to a 92% daily spike in trading volume. However, it was mostly selling, which wiped 11.7% off the share price before this week’s mild recovery.

The company posted a statutory pre-tax loss of £106m and only £3.47bn in revenue — 2.48% below expectations. Subsequently, it lowered revenue estimates for the mid-term, which likely led to the brief sell-off.

Overall, I don’t think the results are too bad and the price will probably bounce back quickly. My main concern is the potential impact of US trade tariffs. CEO Peter Dilnot feels confident they “aren’t a material threat” but I’m wary of President Trump’s unpredictable nature. And there’s the added risk of US defence budget cuts, which could hurt profits.

I was surprised to see that most analysts haven’t adjusted their outlook. Their average 12-month price target is still around 713p — a 36% increase. That’s almost four times higher than when I last covered Melrose in December.

Plus, it raised dividends by 20% from 5p per share to 6p – a strong indication of its dedication to shareholders. I must say, the low price and 20% dividend boost make it attractive. If tariffs threats ease off, it’s certainly a stock worth considering.

Relative trading volume can be a quick way to mentally shortlist stocks with recently notable events.

The post How to identify FTSE 100 shares with unusually high trading volume appeared first on The Motley Fool UK.

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Mark Hartley has positions in Bp P.l.c. and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, LondonMetric Property Plc, and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.