The old 'uns are still good 'uns and fighting back

It could be time to start investing again in the old economy. Although it is still unfashionable with many investors, some of the more sophisticated money is being directed towards the battered and bruised old timers. Not before time.

It could be time to start investing again in the old economy. Although it is still unfashionable with many investors, some of the more sophisticated money is being directed towards the battered and bruised old timers. Not before time.

The stock market pendulum invariably swings too far and the yawning gap which has opened between the profitable old world and the brave new but loss-making world of e-commerce is far too wide. Yields once only available on busted flushes are now being offered by many old-style blue chips which also hold out the possibility of steady profits and dividend growth.

Few, if any, of them will succumb to the new economy. If anything they will embrace the internet, making life exceedingly difficult, if not impossible, for many of the brash young start-ups which are dissipating their seed corn (the cash raised by their flotation) on increasingly desperate and expensive promotions.

Hilton, the betting and hotel group, is a classic example of the old economy fighting back. Since it said it would go online for betting its shares surged from 160p to hit 285p at one time.

A host of other companies, ranging from Reuters to holidays group Thomson Travel, are clearly set to make life more difficult for the dotcoms. Bankers, brewers, food producers, retailers and utilities have been the major casualties as investors have pitched for the new economy.

But it would be foolish to pretend their shares have been hit by waves of selling. I bet most institutional investors are still as big in old-fashioned shares as ever, although sliding prices will cut into valuations. They have not been dumping them in a desperate, lemming-like stampede into untested high techs.

Although it may not be readily apparent, the old economy may already be on the move. In recent weeks, shares have edged away from 12-month lows as largely institutional buyers have decided falls have been overdone.

Bells do not ring when the stock market is on the turn. And there is always the danger of a dead cat bounce. But old-fashioned shares are edging back to more realistic prices. The devastation they have experienced will be highlighted today when the latest round of Footsie changes are revealed.

It will be the biggest shake-up the index has suffered since it was started in 1984. Many widow and orphan shares will be relegated to the mid-cap index which, together with the small cap, is still hitting highs.

To underline my belief that the old 'uns are coming back into favour - although I am not suggesting they will quickly recapture their earlier peaks - I am putting one of the shares in the Footsie relegation zone into the no pain, no gain portfolio.

Scottish & Newcastle, the nation's biggest brewer, has had a torrid time, falling from 945p two years ago to 341.5p, lowest since 1992. The shares are now around 394p, selling at seven times expected earnings and offering a prospective yield of 7.3 per cent.

In the upheaval taking place in the beerage, Scottish seems destined to emerge as the last remaining British-owned major beer player. Ownership of the rival Bass and Whitbread breweries seem destined to go overseas and the Danes, in the shape of Carlsberg, already control the other big group, Carlsberg Tetley.

Scottish is well set to take advantage of the departure of the old brewing masters. More importantly, it is an extremely efficient group and profits are expected to move ahead, with ABN Amro estimating £507m in the year to April, 2,002, against last year's £324m.

It was the smallest of the national groups when the controversial Beer Orders, which weakened the industry, were introduced. Good judgement and a little luck have allowed to emerge as the leading group.

It is now, perhaps a little belatedly, looking overseas. Last week it put its Center Parcs holiday centres up for sale and may collect as much as £1bn for them.

The cash is expected to be earmarked for overseas expansion and Scottish is thought to be have been given first refusal on Kronenbourg, the famed lager producer which French food giant Danone wants to sell.

British brewers have so far failed to establish strong presences abroad. Others, such as Carlsberg and Heineken (which may buy the Bass breweries) have shown the international beer game is a lucrative one although not measuring up to the fancy but as yet unproven rewards seemingly lurking on the internet. I believe Scottish will make solid progress and with its shares so depressed there is little, if anything, to lose by including them in the no pain, no gain portfolio.