Which firms will rise in 2012?
Despite a turbulent year for markets, our 2011 portfolio made only a small loss. James Moore has our new picks
Last year most experts were predicting solid, if unspectacular, gains for the stock market as Western economies gradually pulled themselves out of a trough and returned to something approaching health. Things look rather different now.
For the Indy's ten stocks we decided on a relatively conservative approach, designed to capitalise on the upside, but with what we thought would be some fairly safe bets in the event that things took a turn for the worse. They certainly did that, and some of the picks we were confident about (mining, anyone?) were real killers.
But we can happily say we're ahead of the game (again). We aren't shouting from the rooftops but we turned £10,000 into £9,613 for a loss of just 3.87 per cent, compared with a 5.55 per cent loss for the FTSE 100.
On to the new year, where we've gone bargain hunting, looking for stocks we think are under priced together with a couple of safety picks and a couple of out-and-out gambles.
Lloyds Banking Group (25.9p)
Looks to be a gamble. Everything about it screams no. But the shares trade at about half the net asset value of the business, and it is hard to see them falling much further from here, unless Lloyds is going to go bust. Which it won't be allowed to do. Chief executive Antonio Horta-Osorio returns in the new year with a point to prove and his chairman, Sir Win Bischoff, is breathing down his neck, having staked his reputation on Mr Horta-Osorio's abilities. The shares have been oversold.
Not always a favourite of our investment column, it is trading well, has a low-cost model and good cash generation. It has also taken its ads downmarket to compete with those awful opera singers and meerkats foisted upon our TV screens by smaller rivals. On a forward multiple of 14 times earnings for 2012, it might not look all that cheap, but it yields a tasty 4.7 per cent and is a reasonably safe bet.
Intermediate Capital (228.8p)
An odd beast providing "mezzanine" finance, a type of financing that sits between bank lending, or senior debt, and equity. It says much that only a couple of years ago the shares stood at £13 and some analysts were putting out price targets of £20. The company is in a good position to benefit from many banks pulling out of the market for this type of financing. The shares look cheap and offer a huge prospective yield of 8 per cent.
Crazy in this economic climate? No. The shares have been oversold on fears of a slowdown in China – but it only accounts for 10 per cent of total sales, and is a greenfield site that is growing very strongly for the business. Even if China's economy slows, there is a lot for Burberry to shoot for. It boasts a truly global reach and exposure to fast-growing countries, and the City's forecasts are stratospheric.
JD Sports Fashion (624p)
The consumer squeeze means JD has been oversold and now looks good value. All of the key financial metrics at the group (pre-tax profit, earnings per share and dividend per share) are heading in the right direction. The Olympics and European Football Championships will not have as big an impact as at rivals Sports Direct and JJB but they will help, and at just five times forecast 2011 earnings, the shares are as cheap as chips.
Providence Resources (204.5p)
A gamble. The AIM listed oil and gas explorer, focused on off-shore Ireland, began drilling the first of a series of test wells in November to determine whether its Barryroe field, situated in the North Celtic Sea Basin off the coast of southern Ireland, has commercial quantities of oil. There is very little in Providence's share price to suggest that it does. The shares could easily double if the experts who think Providence is on to something are proved right.
A safer resources bet. The engineering and consultancy firm to the oil and gas and mining sectors has been trailing rivals on fears that it may use a £500m cash mountain to overpay for acquisitions. Many analysts disagree. They say that if AMEC can't snap something up cheap, the cash will be handed back to shareholders. Also, with difficult-to-access oil and gas now all the rage, the skills of its consultants and engineers are in high demand.
William Hill (202.8p)
The bookie trades on a multiple of just 8.4 times 2011 forecast earnings, falling to 8 times 2012 while offering a prospective yield of 5 per cent (rising to 5.5 per cent). These are the sorts of numbers that should get any punter salivating. It's not immune to the consumer squeeze – people will still bet, but they may lower their stakes. Still better placed than many, though. With a consistent and stable earnings stream, Hill's is badly undervalued.
Rolls Royce (746.5p)
Hardly cheap, trading at a slight premium to peers with a yield that is only moderate (about 2.9 per cent next year). Still, Rolls Royce has a strong portfolio of businesses, is superbly well managed, and broadly does what it says on the tin. If any of our more speculative tips fall over, this ought to hold the portfolio.
African Barrick Gold (458.8p)
A big loser for us last year. We're back for more, for the simple reason that if the prophets of doom are correct and the economy is going to nosedive this year, we want some exposure to gold. Plus the fact that ABG has fallen too far.
The Experts' View: Mirabaud hopes for another winning year
Our experts didn't have an easy time in 2011. No one saw how badly the eurozone would stumble and its impact upon the markets in August, when share values lost billions. Their predictions for the end-of-year FTSE ranged from 5,900 to 6,550 and it was the most bearish of those, Steve Clayton from Mirabaud Securities, who wins the prize for the most accurate forecast. He's back for another crack this year.
As for the shares, our panel did much better, with five winners (GlaxoSmithKline, BG Group, Rolls Royce, Telecity and AstraZeneca) and just three losers, although BSkyB were barely down, unlike laggards African Barrick Gold and BMW.
The top performer? Mr Clayton again. His Telecity produced a gain on the year of just under 34 per cent. Mirabaud is one of the City's smaller houses but it clearly has a star on its hands. As usual we have an eclectic mixture of fund managers, analysts, brokers and spread betters tipping for us. Mr Clayton goes first.
Steve Clayton, analyst, Mirabaud Securities
Telecity (647p): Their well-connected data centres command premium pricing to clients who need the fastest connectivity. During the year Telecity announced further new capacity expansion and the acquisition of the leading player in Ireland. As the digital economy grows, so does demand for Telecity.
FTSE 100 Prediction: 5600.
David Buik, partner, BGC Partners
Salamander Energy (201.9P): Despite the economic downturn, well-run energy companies have great appeal and Salamander is one of those. It conducts its exploration and production of oil and gas in South-east Asia and is well run by James Menzies.
FTSE 100 Prediction: 5550
Stephen Adams, head of UK equities, Kames Capital
Burberry (1,185P): In a period of anaemic global growth, we believe Burberry can deliver genuine expansion of the top line and at the same time drive margins upwards.
FTSE 100 Prediction: 5700
Phil Doel, manager F&C UK
GlaxoSmithKline (1,471.5p): Continued distress in financial markets point me towards a company that can deliver most of its objectives without external help. GSK has a solid balance sheet and is highly cash generative.
FTSE 100 Prediction: 5750.
Jeremy Batstone-Carr, chief economist, Charles Stanley
Imperial Tobacco (2,435p): Year after year the tobacco stocks keep delivering. During periods of elevated uncertainty and economic crisis we would expect tobacco stocks to hold up well.
FTSE 100 Prediction: 5,800
Andrew Hannay, director, Robson MacIntosh
Royal Dutch Shell (2,371p): Qatar signed a deal this December with the company to develop a $6.4 billion petrochemicals complex and Iraq's cabinet approved a $17bn deal with Royal Dutch Shell and Mitsubishi on Tuesday to capture gas that is now being flared off into the atmosphere at southern oilfields.
FTSE 100 Prediction: 5,900
Andrew Darley, research director, FinnCap
Corero Network Security (44.5p): Corero aims to find and acquire opportunities internationally in network security, where entrepreneurs have developed ideas and products but where the technologist needs to give way to professional operators.
FTSE 100 Prediction: 5,800
Joshua Raymond, chief market strategist, City Index
Burberry (1,185p): Burberry may be a stock to watch, having fallen 27 per cent from its June 2011 peak of 1610p. It has benefited from strong demand in emerging markets such as Asia. From a technical level, strong support lies around the 1000p mark, and this is a level where buyers could emerge.
FTSE 100 Prediction: 5,900
Luke's Top Five: Our toddler tipster's choices
The Independent's guest share tipster Luke Moore, son of investment column editor James Moore, endured a tough second year.
His portfolio was let down by the miners Antofagasta and Anglo American. Tesco also under-performed, as did his big punt, media company 4imprint. Only Burberry's bucked the trend to show a profit.
This year, with his bedroom given a lick of paint and his assistants (mum, dad and the grandparents) at his beck and call, he's primed to join the City's elite and is hopeful of a turnaround.
Armed with a pin and The Independent's share pages, he first found Ladbrokes (130p), a company his father has been happily taking money off, until the jumps season started and things took a turn for the worse. Luke thinks this augers well for the new year.
He's also found Unilever (2,163p), a company whose multitude of brands are dotted about his house. It's a solid, defensive pick. Cooking is something Luke enjoys a great deal. He found Aga Rangemaster Group (71p), makers of uber-posh cookers. If this is intended as a hint to his parents, it's not going to work.
Next there's International Power (337.2p). Luke certainly uses a lot, as his parents can testify having seen his impact on their electricity bills.
Last up is broadcaster ITV (68.15p), quite possibly on the list after Luke was taught some "alternative" Christmas Carols. To whit: While Shepherd's washed their socks by night all watching ITV etc etc.
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