Investment Column: 'Independent' seems to be tipping in the right direction on shares

Copper-bottomed advice from professionals
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The Independent Online

Approaching the half-way point, and The Independent's tips for 2004 are comfortably outperforming the wider market, with a 10 per cent gain compared with a FTSE 100 that is back to within 30 points of where it started the year.

Approaching the half-way point, and The Independent's tips for 2004 are comfortably outperforming the wider market, with a 10 per cent gain compared with a FTSE 100 that is back to within 30 points of where it started the year.

With most pundits expecting a lacklustre performance from blue-chip stocks this year, we moved our main focus further down the market.

One of our most successful tips to date has been Pipex Communications, a broadband internet company being built up through acquisition by Peter Dubens, one of the AIM market's serial entrepreneurs. So far this year, he has paid £32m for Host Europe and trading at the acquired businesses appears to be going well. The shares have risen more than 30 per cent, are attracting more interest in the City now, and the management team continues to be worth backing.

It is a similar story of growing City respect for Numis, the broker which we tipped at 552.5p. Now 670p, the company came through a row over the accelerated flotation of Centaur (its rivals tried to throw mud at Numis, claiming it had a conflict of interest in working with Centaur, a publisher, when an existing client wanted to bid for it) and is trading well. We are confident it will race ahead of its less ambitious peers in the crowded world of investment banking.

And there has been a big uplift, too, in the share price of Speedy Hire, an unexciting sounding but well-run and undervalued tool hire business. There is more to come, as more of the UK's small traders choosing to rent their tools rather than buy them, and as Speedy Hire moves into the business of loaning out more substantial building site equipment.

Our big disappointment is Courts, the furniture retailer. We had expected that it would find ways of unlocking the value in its overseas subsidiaries at a time when rising interest rates would mean that its core UK business could only tread water. Disastrously, poor trading in the UK has been accompanied by write-downs of stock and other one-offs that have plunged the company into losses and left it dependent on getting new credit from its banks. In such circumstances, it is difficult to imagine the shares ending any higher than they are now.

Our losses on Courts have been more than counter-balanced by the 63 per cent gain on Profile Therapeutics, a medical devices company which has developed a novel inhaler. It is being taken over for £25m in cash by one of its suppliers.

There's always a chance of a takeover at Great Portland - Liberty International has been a menacing 29 per cent presence on the shareholder register for several years - but the revival in the property market continues to put plenty of steam behind the share price. The possibility of companies converting to investment trusts, if the Government pulls together attractive proposals, has stoked interest in the sector this year, too. And the Government's moves to engineer competition to the Royal Mail should boost Business Post's fortunes in the long-run even if the start of the company's licence to collect mail from big business has not yet been enough to push the shares higher.

We still also think it is worth buying Cookson, despite a distinctly average performance by its shares. The company's fortunes depend on the emerging recovery in the semiconductor industry, since its products are used in the manufacture of microchips. A pick up in the shares could come as the new chief executive, Nick Salmon, makes the rounds of the City in the coming weeks, and as the company finalises the disposal of its precious metals division.

The two blue chip shares that we did put in the portfolio have served up contrasting returns so far. Despite a scare over the effect of the falling dollar, Smiths continues to grow its medical devices business and prepares for an upturn in maintenance of civil aircraft. And despite the City's apparent despair over its strategy, we are not giving up hope of J Sainsbury reversing the 8 per cent fall since January. The new chief executive, Justin King, is already manoeuvring the supermarket giant to put up a greater fight with Tesco on price and we are still predicting the early exit of Sir Peter Davies, the chief exec-turned-chairman. Don't forget the 5 per cent dividend yield.

Copper-bottomed advice from professionals

There is no shame in being outdone by the professional tipsters, who are up 19.7 per cent to The Independent's 9.9 per cent so far this year. One fund manager in particular has struck gold - well, copper, to be precise - with his recommendation of Monterrico, a mining business operating in deepest, darkest Peru. Andy Crossley of Invesco has enjoyed a fair wind behind his tip thanks to soaring copper prices, but the real creator of value was really Monterrico's decision last month to put its main Peruvian mine up for sale to someone better able to start producing copper there.

SVM Asset Management's Colin McLean is some distance behind with his tip of Corus, as is last year's winner, Ralph Brook-Fox of Britannic, who picked mmO2, the mobile phone group, for the second year.

Much to play for in the second half. The clothing group Jacques Vert, recommended by Ruth Keattch of DWS Investments, has suffered disappointing trading to date but there is a new head of womenswear to try to reverse the sales decline.

And Center Parcs, which floated at the tail end of last year and was tipped by David Lis of Morley, has also under-performed so far this year, in part because of a health scare at one site, but the crucial summer holiday period is yet to come.

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