After our storming 2013 in which our 10 stocks to follow returned a spectacular 55.3 per cent, the risk of 2014 producing a hangover was a strong one, especially in an uncertain market.
Happily, while the follow-up 10-to-follow didn’t come close to matching 2013, it still ended the year comfortably in positive territory: The Independent’s share tipsters produced a return of 4.3 per cent (excluding dividends).
If that doesn’t look like much to write home about, we managed to do something most fund managers struggle at – we beat the market, which ended the year in the red. The FTSE 100 finished down 2.7 per cent. We also beat our panel of experts, although their performance was still very creditable. Their portfolio returned a positive 2.2 per cent.
Even so, we had more losers than winners. With the oil price in freefall, Shell was always going to struggle, and it can’t have helped Good Energy. Sadly, with oil cheap, interest in alternatives which might harm the planet less has cooled somewhat.
Genetics group Genus has been struggling to catch up all year after an outbreak of porcine epidemic diarrhoea virus shortly after we tipped it sent the shares tumbling to a two-year low. Babcock might now be the ultimate boys’ toys company after its takeover of helicopter company Avincis, but the shares haven’t recovered from rights issue that funded the deal.
Software firm FusionEx, expected to be a big beneficiary of big data, has fallen out of fashion having been the 10’s biggest winner at points earlier in the year, while Ladbrokes has suffered an annus horribilis. Delays to its turnaround, profit warnings, and the Government’s decision to turn the screw on fixed odds betting terminals in the budget. Ouch.
Happily, where we won, we won big. There’s nothing like choppy and uncertain markets to get the spread-betting fraternity excited, as the increasingly international IG Group proved. IAG (British Airways and Iberian) has been flying high all year with boss Willie Walsh in delivery mode, while utility Severn Trent proved the value of investing in defensive stocks when markets are choppy.
But the biggest positive for our portfolio was Man Group. The embattled hedge fund manager looked to be on its knees at the end of last year, but our guru Jamie Dunkley reasoned that either its management would steady the sinking ship or there would be a bid. Either way the shares would benefit. He was proved right, on the former count.
Without further ado here are this year’s selections, and there is a theme. This is our turnaround 10, featuring a basket of dogs that we think can bark rather more loudly, and healthily in 2015.
As ever, the construction of the 10 is a team effort, with the final selections culled from suggestions put forward by our business team. I just make the final cut.
After last year’s bravura showing, it seems foolish not to go with the good Mr Dunkley’s 2015 selection first.
It is Partnership Assurance (139.5p), which specialises in pension annuities for people who have medical conditions of one kind or another.
George Osborne’s March budget, which scrapped the requirement on people to purchase an annuity with their pension savings, ripped the heart out of its market and saw Partnership losing more than half of its market value over night. This year, however, things can get better. The company is set to launch a new range of products and has also been pushing hard into the lucrative bulk annuity market, looking after company pension schemes rather than individuals. Experts also believe the company could do a deal, either diversifying its operations or merging them with a rival.
FTSE 100-listed “investment supermarket” Hargreaves Lansdown (1012p) is another financial services group that had a pretty miserable 2014. Tighter regulation of retail investment was a big part of the story. The hasty departure of its chief financial officer also helped push HL out of favour.
But the Bristol-based business continues to attract new customers at a decent clip. Assets under administration were up around 30 per cent in the year to June and there could be scope for a turnaround in market sentiment on the stock. Granted, with a price-earnings ratio still around 25, Hargreaves shares don’t look especially cheap. Yet Government policy should provide some supporting winds. Those pension liberalisation reforms that so hit Partnership could result in more people choosing to manage their savings actively through companies like HL. The increase in the stocks and shares ISA allowance to £15,000 should also help customer growth.
Two members of our team are adamant that 2014 can see a reversal in the fortunes of Tesco (189p), despite its horrid year and the continuing threat posed by discounters. This is a very risky play. but on the plus side, its vast property portfolio should provide a floor for the shares, and a recent candid conversation with a rival revealed that they are by no means counting Tesco out.
Why? They don’t think Tesco, which still boasts an appallingly large market share, has to do all that much to get things moving in the right direction again. And they respect what they call some “smart retailers” who still work there. There have also been recent signs that the decline in its sales is slowing.
Another stock to find favour with two of my colleagues is Serco (6160.7p). As with Tesco, I admit to having had a few doubts, but my colleagues both rate chief executive Rupert Soames as a turnaround boss who has already taken decisive action in the wake of the scandal over the tagging of dead offenders.
There will be some unsteady months until the election. However, whichever party gets elected, they will be relying on contractors like Serco as never before.
If Sir Winston Churchill can come back from Gallipoli, his grandson, Mr Soames, can get through some disappointing financial figures. Moreover, I read the National Audit Office report on outsourcers earlier this year. It made an interesting point about Serco (and some other outsourcers): it’s become too big, too important to this country’s Government services, to fail. The shares could represent a steal at their current price.
The oil price is cyclical, and while we don’t think it’s going to push the heights of a couple of years ago, we do see it increasing off its current levels, not seen since the financial crisis of 2008. Therefore it pays to have some exposure to the sector. A safer bet than most would be Tullow (414p). Analysts feel that the 50 per cent decline in its shares this year is overdone. They think that, even if the oil price stays low, the Tullow’s shares are likely to rebound next year – and if the oil price rallies, they could rise quite sharply.
Tullow was hit this year as the Irish company that mostly works in Africa encountered a series of dry wells, most recently abandoning one in Norwegian waters. It also had some difficulty finding partners to “farm out” some of its project costs to.
But having slashed its capital budget by 60 per cent in November, and with a good portfolio of oil-producing assets, not to mention a strong balance sheet, Tullow is actually in a strong position. The group’s TEN project, off Ghana, is particularly promising and is due to begin producing oil in the middle of 2016.
Luxury British brand Mulberry (825p) has taken a handbagging this year, and no wonder given its performance. Now the recovery appears to be underway, however, and 2015 might just be the time to unzip your posh purse. Former boss Bruno Guillon had presided over no less than five profit warnings when he exited in March amid ill-fated attempts to solely focus on expensive handbags. But the price is still well down on the highs recorded in 2012 while positive noises made in the run up to Christmas bode well in a market where premium retailers, as well as the discounters, are doing well.
We bet on Ladbrokes (110.5p) last year, to our chagrin. This year may be different. The bookie operates in a tough regulatory and political climate, and chief executive Richard Glynn has disappointed with his turnaround slower than promised.
However, there will be a new jockey taking the reins of this horse at some point this year. A credible candidate could do much to light a fire under the shares because we’re told much of the hard work required to get this super-brand back on its feet, has been done. Oh, and the general election. There’s no big football tournament this year, but look for that to provide a nice little consolation prize in terms of revenues.
We had to have a few safer bets, hence Secure Trust Bank (2835.5p). This will be the year of consolidation among so-called challenger banks. Secure can be one of the winners. It was spun out of Conservative donor Henry Angest’s Arbuthnot Banking Group three years ago at 720p. Today the shares are 2820p but even that quadrupling has not stopped US hedge fund billionaire Steve Cohen building up an 8.5 per cent stake. Secure is likely to be a driver in consolidation and, unlike several of its larger peers, it even pays a dividend.
Shares in AstraZeneca (4555.5p) are still a way off the heights they reached during its successful battle against Pfizer. But they’ve been on the rise. The drugs group has a pipeline that’s looking increasingly robust. And if it even shudders, takeover sharks will be circling again, a fact that chief executive Pascal Soriot will be only too well aware of.
Finally, we like Aberdeen Asset Management (432.2p).It is handling the slowdown in emerging markets better than most, is well run, has good control of costs, and its buy-up of Scottish Widows Investment Partnership should help diversify it away from emerging markets. A chunky dividend underlines its attractions, and analysts have been talking about share buybacks. Plus if markets come round, it is operationally geared to benefit.
... and eight top tips from the professionals
With the markets on the slide overall, our experts just about earned their bonus money in 2014, producing a positive return of 2.2 per cent. Had you invested £1,000 into each of their eight tips it would today be worth £8,176, not including dividends which would increase that total still further. That’s not to be sniffed at with interest rates and inflations at historic lows.
Of the eight tips, four made money and four lost ground, with Stephen Adams, head of UK equities at Kames Capital, winning with his tip of Carphone Warehouse, which, following its 50-50 merger with Dixons, was not only our experts’ standout, it was the year’s best performer on the FTSE 100 with a stonking 71 per cent return. Adams was also closer than most with his prediction for the FTSE 100, with 7,100.
That’s not saying so much, given where it finished, but all of our experts last year had expected a solid performance for the main market and had the blue-chip index at above 7,000. Which just demonstrates how difficult it is to make this sort of forecast.
The closest to the mark was DeVere Group’s Tom Elliott, who was the most bearish with 7,000. He’s gone for the same number this year.
Once again, thanks to our panel for being brave enough to step up to the plate. To keep their compliance officers happy, I should stress that the views they express are their own and that this exercise is designed to be fun. Before investing any real money consider your personal circumstances and take regulated financial advice if you require. Without further ado, here are their tips for 2015, starting with our current title-winner:
Stephen Adams, head of UK equities, Kames Capital
Esure (204.2p) The year 2015 is likely to mark the trough in motor insurance rates which should underpin the significant dividend yield premium on offer at Esure.
FTSE 100 prediction 7,100
Garry White, chief investment commentator at Charles Stanley
Weir Group (1,851p) Sentiment surrounding the pump and valve engineer is at rock bottom because its energy and mining customers are suffering as the prices of oil and other commodities fall. But the company has a substantial after-market business, in which it sells spares and repairs. The valuation is attractive.
FTSE prediction 6,900
Christian Gattiker, head of research at Julius Baer
Associated British Foods (3,153p) We like this because Primark is a long-term winner which is still in the early stages of its life-cycle, from which we expect positive contributions in full year 2015. We expect some improvements in ABF’s other units in 2015, primarily in the grocery business.
FTSE 100 prediction 6,700
Ben Ritchie, Aberdeen Asset Management, manager of the Dunedin Income Growth Investment Trust
Compass Group (1,101p) The world’s leading contract caterer has excellent management, a strong market position, global reach, prodigious cash generation and a robust balance sheet which should all help to fuel both further earnings growth and allow them to continue to return generous dividends to shareholders.
FTSE 100 prediction 6,000
Simon Bragg, chief executive, Oriel Securities
Enquest (35.5p) Not for the faint-hearted but my assumption is that oil will be higher at the end of 2015. A well-run UK exploration and production business is Enquest, which in 2015 has seen its share price fall 75 percent with the oil price. Given its operational strengths and gearing to any recovery in the sector, it should deliver strong gains when there is any rise in energy prices
FTSE 100 prediction 6,200
David Buik, chief market commentator, Panmure
Focusrite (145.5p) The maker of audio equipment is unexposed. If its musical products catch on the way I think they will, it will be a real growth stock.
FTSE 100 prediction 6,500
Tom Elliott, international investment strategist, DeVere Group
BAE Systems (472p) It has a solid balance sheet, diversified product lines and delivers a good dividend yield in a world of yield-hungry investors. Furthermore the dividend is well covered by earnings, which offers protection to investors in an industry notorious for large but irregular earnings from sales of military kit.
FTSE 100 prediction 7,000
Nicla Di Palma, equity analyst, Brewin Dolphin
Kingfisher (340.5p) The reform of the stamp-duty system will have a positive impact on Kingfisher’s UK business in our view. Indeed, we expect the UK home-buyer to use the stamp-duty savings on DIY items, as well as new kitchens and bathrooms.
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