Our power plays as the bull market gathers momentum

'IoS' share tips: following strong gains last year, our writers select their stocks to watch in 2007
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The Independent Online

The London stock market performed well in 2006, but those who followed our share-buying advice 12 months ago are now sitting on even healthier gains.

Of the seven stocks we tipped last December, four have outperformed the wider market. Only one, Taylor Nelson Sofres, had a bad year. Shares in Whitbread soared 72.2 per cent and the leisure group handed back a wad of cash to investors in the form of a special dividend. Compel, the IT group, Vodafone, the mobile giant, and plastics maker Romag all posted heady gains. A sum of £100 invested in our portfolio 12 months ago would now be worth £131.

This year, the Independent on Sunday business team have chosen an equally eclectic mix of companies. And with analysts saying the FTSE will climb to just under 7,000 next year, this is still a good time to be in equities.

Salamander Energy

After a strident 2006, top-flight prices are looking rather bloated, so it pays to investigate further down the food chain.

Salamander does not, however, lurk in the darker recesses of the Alternative Investment Market (AIM); earlier this month, it became the first oil and gas company to float on the main list for three years. Since then its shares have moved only marginally, but that shouldn't be a deterrent. After all, look at some of Salamander's early investors: the blue-chip private equity firm 3i and Irish racing tycoon JP Magnier, who made £40m on the float. Run by well-regarded industry executives, Salamander focuses on South-east Asia, where there are few pure exploration and production players. Production levels are already close to 6,500 barrels a day, while reserves are around 14 million barrels. Of course, with any energy minnow there's always a risk they will stay just that. But just look at what has happened to Cairn Energy.

Abigail Townsend

Vodafone

Could 2007 be the year when the market falls back in love with mobile operators? Vodafone, like its peers, has been beset by falling prices, vicious competition and a difficult regulatory environment. But its share price has risen strongly in the past six months, following the appointment of Sir John Bond as chairman. He has stamped out boardroom unrest, provided a sense of direction and given chief executive Arun Sarin a chance to do his job.

Vodafone is cleaning up its balance sheet by selling off its minority stakes in rivals, and is now more focused on pursuing opportunities in fast-growing developing markets.

The company is trading at less than 13 times earnings and has a dividend yield of 4.8 per cent. Vodafone beat forecasts when it last reported, and one further bullish update to the market will give the stock real momentum.

Andrew Murray-Watson

Ceres Power

You need a leap of faith to buy into Ceres Power, a manufacturer of energy-efficient boilers, but investors should be rewarded.

Listed on AIM two years ago, the company is still testing its main product - a domestic boiler that uses fuel cell technology - and has yet to make a profit. This year its shares have underperformed the market - the stock peaked at 334p in April and is now closer to 200p. But by the middle of next year Ceres aims to start showing prototypes of the boilers; if all goes well, they could be in the shops in 2009.

Morgan Stanley estimates that the product will cut the average household's annual utility bill by a quarter. With gas and electricity suppliers facing new rules next year designed to reduce customers' energy use, the likes of Ceres could be in huge demand.

Tim Webb

Wolverhampton & Dudley Breweries

The country's largest producer of cask beer probably won't survive to the end of the year, at least in its current form. And that is likely to be a very good thing for investors.

Earlier this month, reports surfaced of a possible bid by an unnamed suitor. The news broke the day before the operator of pub chains including Pitcher & Piano unveiled record annual profits. Wolverhampton & Dudley has a network of more than 2,350 pubs around the country, making it a target for private equity firms, which have been gobbling up companies with large property portfolios over the past year. Alternatively, it could merge with rival Greene King, as has been rumoured, or take advantage of new regulations allowing pub companies to convert into tax-efficient real estate investment trusts (Reits).

The company nearly doubled its annual profit from a year ago, raised its dividend and announced a share buyback programme. Drink up.

Danny Fortson

Inchcape

Last year, the 18-month-old son of business editor Jason Nissé gave us our "random" stock pick. Nissé Jnr may one day run a hedge fund: IT group Compel posted a return for 2006 of 34.3 per cent.

Since then, Nissé Snr has moved on to pastures new, leaving the new business editor to choose a new wild card by chucking a dart at the shares page. The dart skewered Inchcape, the car dealership that has just agreed to pay £262.9m for rival firm European Motor Holdings. Inchcape's shares rose by more than 30 per cent in 2006, and it looks well placed to prosper again over the next 12 months.

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