Fourteen to follow next year

Last year's stock market performance will be a hard act to follow: our team has picked some potential winners. Below - how their 1995 predictions fared
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The Independent Online
AS USUAL at this time of year, the business staff of the Independent on Sunday and the Independent put their necks on the block and tip a share each for the year.

In time-honoured fashion, the usual health warning applies. The tips are an ad hoc selection, some of them highly speculative, and in no sense constitute a balanced portfolio.

Patrick Hosking

I think it's going to be a tough year for the stock market, so I'm playing safe. I like the look of Great Universal Stores. This has, of course, been one of the most solid though unexciting of shares, steadily producing earnings growth year after year. So why should next year be better than normal?

o GUS has a new chairman, David Wolfson. Lord Wolfson has a spectacular track record, propelling the fashion chain Next from a low of 8p to more than pounds 4. He also has considerable experience and expertise in mail order - the one part of GUS in urgent need of attention.

o It's going to be a good year for consumer spending. That's partly because the Conservatives are certain to take the brakes off ahead of the election, but mainly because of pounds 40bn of windfalls coming as Tessas mature and building societies convert to banks.

o There is scope for a variety of structural changes in the group, which could help boost the shares. There could be another one-off cash distribution and Burberry's, the upmarket fashion chain, could be hived off.

The balance sheet is rock-solid, the culture one of tight cost control. You won't double your money in GUS - currently at 685p - but you'll sleep at night.

Paul Farrelly

A hoary old chestnut, this. Trafalgar House seems to have been a recovery stock since the beginning of time. The Cunard-to-Ideal Homes group has been so not so much on a roller-coaster ride of late as on the wrong end of a Big Dipper. The shares plummeted from 76p in January to a record 18p low in October before the leading shareholder, Hongkong Land, reaffirmed its support.

Losses of pounds 321m a fortnight ago saw another plunge before the shares perked up to 27.75p last week, on whispers of a full bid from HK Land. That may be a bit far-fetched at present, but on the face of it a pounds 3.7bn turnover company should, long- term, be worth more than pounds 470m. That sounds dangerously like the logic that persuaded HK Land to pitch in at 85p two years ago, but after chucking the kitchen sink into provisions this time, the shares seem worth a punt.

Shareholders will not see a dividend yet, and should be prepared for a capital reconstruction or rights issue, or both. The reputations of new management are now firmly on the line, however, and the capital upside is there. Fingers crossed.

Paul Rodgers

The only thing better than owning a railway is owning a monopoly railway. It's what I always aimed for when playing the board game, and I'm tempted again in real life. Add to that the phenomenal success of past privatisations and the proven track record of buses-to-trains company Stagecoach, and buying the shares - 354p, 3p off record highs, at the year-end - looks a good bet.

It is a bit of a gamble, as there is nothing yet with which to compare Stagecoach's new rail venture directly. But with an estimated pounds 48m of season ticket revenue, for starters, and pounds 55m in government subsidy, it should be strongly cash-generative.

As the company has an (ahem, how to put it) "aggressive" reputation, the chances of the unregulated fares - almost half of total revenue - being lifted seem fair.

The main caveat is that buyers should be prepared to sell out on the eve of the next general election if Labour looks like winning.

Steve Lodge

A caged chipmunk will set you back pounds 89-pounds 99, a pet tarantula in a glass box pounds 32-pounds 99: Pet City, the 35-strong chain of specialist, edge-of-town pet superstores, was a popular entrant to the new AIM junior stock market earlier this month, opening at 350p, 50p above its launch price, and ended last week at 382p.

But Pet City shares are not just for Christmas. An ambitious store-opening programme means that the company does not expect to make a profit until 1997. But the idea seems attractive and the management is experienced. Speculative, and definitely not for arachnophobes.

Roger Trapp

I must start with a declaration of interest. Groupe Chez Gerard, the London-based restaurant chain, is a graduate of the Independent on Sunday's "Independent 100" listing of fastest-growing private companies, which begins its sixth annual survey next week. I am especially satisfied, therefore, with the advance in the shares from the March 1994 issue price of 112.5p to last week's 217p.

Can this heady pace continue? Probably not. But restaurateurs Laurence Isaacson and Neville Abraham are unlikely to let your investment down. With falling interest rates set to boost spending power, the company should be in a good position to exploit any feel-good factor. Moreover, the stock has recently climbed on takeover speculation, which could, of course, bring about a spectacular rise if Chez Gerard was on the receiving end of a bid. Those looking for another exciting ride may also wish to board another "Independent 100" alumnus, the mobile phones chain People's Phone Company, which intends to come to market early next year.

Tom Stevenson

Having failed dismally with what looked like a safe, high-yield tip for 1995 in the shape of Redland, I am throwing caution to the wind this time and recommending a share which has not begun trading yet. Self Sealing Systems is yet to make a profit, will barely break even next year and, when it comes to the market early in the new year with a placing at 54p, will be traded on the less strictly regulated Alternative Investment Market (AIM).

However, the company, chaired by the Betterware and Flying Flowers chairman Walter Goldsmith, has a brilliant idea to sell - a knot-free balloon. Like most great ideas, it is fantastically simple - removing the non-sticky layer near a balloon's opening so that after it has been blown up, simply squeezing the neck seals in the air, avoiding all that fiddly knot-tying that everyone hates.

Self Sealing Systems licenses the technology to balloon makers, and if projections are met will trade on a bargain basement prospective price/earnings ratio of only 2 in 1998.

Patrick Tooher

If any sector offers a genuine prospect of doubling your money in a year - and winning this competition hands down - it has to be biotechnology. Many biotech babes soared last year, but not Cantab Pharmaceuticals. Its shares - at 460p two years ago - fell to 103p after the company admitted its most promising drug - designed to prevent kidney transplant rejection - was no better than a placebo.

A quarter of the 90 staff were axed, but the corner was surely turned in September, when the US pharmaceuticals giant Pfizer paid 250p a share for an 8 per cent stake to develop animal health applications for Cantab's vaccine technology.

Similar deals with other drugs companies are in the pipeline. Cantab's most advanced drug is a vaccine treatment for cervical cancer, and Phase II trials are due to begin soon for a treatment for genital warts - the fastest- growing sexually transmitted disease in Europe and North America. Clinical trials for a genital herpes treatment should also begin within six months. None of these products is likely to earn a penny this side of the millennium. But in a notoriously hit-and-miss sector, Cantab, now at 340p, looks as good a bet as any for next year.

Clifford German

Hanson may be a rag-bag of relatively low-tech businesses; it may be disposing of profitable US operations to reduce its debt burden; the group's UK buildings materials operations may well suffer from government cut- backs; tobacco may be desperately unfashionable, and dividend cover may be looking a bit thin. But debt is being reduced and the spread of operations is sound, safe almost.

The share price, however, has virtually been halved relative to the FT- SE 100 share index, and at 192.5p they now yield almost 8 per cent. Surely no business can stay so under-rated for ever. Can it?

Magnus Grimond

One for the brave, even foolhardy, this. British Gas has been on the ropes all year, reeling from a succession of blows. Cedric Brown's fat pay cheques have been the least of the company's worries as it has been squeezed between historically high temperatures, causing demand to slump, and hugely inflated costs for gas from the North Sea.

Last month it announced that it would have to pay pounds 520m for gas it would not use under its so-called "take or pay" contracts, a hangover from the days when it had a statutory duty to supply everyone with all the gas they needed. Meanwhile, the market anxiously awaits the decision of the regulator, Ofgas, on a crucial new price control regime for domestic customers in April 1997. The company's salvation probably lies with the politicians, but the shares, currently yielding 7.2 per cent at 254p, are discounting much of the bad news and give a better return than the building society. Speculative, but any bounce could be spectacular.

Nigel Cope

My tip for the year is Storehouse, the retail group which owns BhS and Mothercare. The shares have already had a good year, rising by around 50 per cent to 332p. However, this does not neccessarily mean the best is over. Many were saying the same about rival retailer Next 12 months ago, but it has again been one of the best-performing retailers on the market.

The Storehouse story so far has been about improving margins rather than chasing sales. It has also been offloading unwanted formats, improving its systems and pruning its supplier base. The challenge now is to grow sales. Storehouse should be assisted by growth in consumer spending, which should be boosted by a tax-cutting budget in November.

Mathew Horsman

Few sectors have been as sexy in 1995 as media, and few media stocks have performed quite as well as those of companies in the commercial radio business. No surprise, then, that Capital Radio, one of the biggest and best- managed of the lot, should attract so much attention.

Some of this past year's success has come from well-timed disposals: for example, the company banked pounds 20m from the sale of its stake in Metro Radio. But underlying performance was stellar, and the commercial radio market is still growing faster than any other advertising medium, albeit from a low level.

On fundamentals alone, you have to like Capital, with its strong London franchise and well-developed plans for modest acquisitions. But there is a kicker, in the form of the Government's planned relaxation of media cross-ownership rules. Capital is one of a handful of likely takeover targets for radio-hungry media groups. Now at 533p and trading at about 14 times projected earnings in the year to September 1997, there is value to come. With takeover talk, the prospects could be more attractive still.

Russell Hotten

There's nothing like facing a hostile bid to focus a management's attention on shareholder value. Amec, the UK building and engineering contractor, used the traditional "jam tomorrow" defence to fend off Kvaerner this month.

Often, such promises are not kept. But although Amec has its problems, it may have a better chance of delivering than many other companies that have called on investors to be patient. The economic cycle is, at last, in Amec's favour, and the acrimonious bid battle focused attention on some of its better international businesses. New management blood is being injected in the form of incoming chief executive Peter Mason, who has promised a root-and-branch shake-up. And the company has shown through merger talks with Alfred McAlpine that something must be done about overcapacity in the industry.

Amec shares have fallen to 94p since Kvaerner's pounds 1-a-share offer, but there is talk of other bidders, which should prop up the shares until recovery feeds through.

Derek Pain

Allied Leisure has had a tumultuous stock market history, but, under company doctor Ken Scobie, it has hopefully put its colourful past behind it, emerging in the process as the country's biggest ten-pin bowling group. With 35 alleys - 19 of them recently acquired from Granada - it is in a strong position to benefit from economies of scale.

Profits this year could reach pounds 3m (against pounds 1.8m) and there is always the chance of a bid. The shares have stuck around 42p while a pounds 15.8m rights issue, to help pay for the Granada centres, goes through, and are well placed to strike it lucky.

John Shepherd

The year's biggest share price risers are often from the ranks of penny stocks, and Saltire is one such stock that may well catch the eye in 1996. Formerly known as Cannon Street Investments and once described as a struggling conglomerate, it is now focusing on consumer electronics. Management has moved fast and effectively to shake up and shake out the unwanted subsidiaries. There is a strong chance the company will make more disposals and erase all its debts this year, and it should return to profits. At 12p the shares are worth a punt.

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