Investment column: Independent's tips are winners
Tuesday 24 August 1999
It was a tricky time to be a tipster. Growth stocks were few and far between amid continuing fears over consumer spending and sluggish economic growth. We decided to identify shares that looked oversold and were worth a bet on recovery.
However, one recovery we missed was the turnaround in commodities markets, which has seen oil and mining stocks re-rated. Even so, the portfolio, which included some bets and a speculative Internet stock, is up 25 per cent on the year, against a stock market up 9 per cent. The portfolio chosen by the classmates of the City editor's son meanwhile has risen 30 per cent, helped by the inclusion of British Steel and Independent Newspapers.
Ironically, it is Zergo, our "not for widows or orphans" Internet tip now known as Baltimore Technologies, which leads the climbers. The company's strengths in encrypting credit card numbers to make secure transactions over the Internet have seen the shares soar amid the City's optimism over e-commerce.
Barclays led the recovery plays, up 45 per cent since January following its decision to slash its back office staff and its appointment of a new chief executive this month. The logic also paid off with Asda. Its discount to the retail sector made it attractive to Kingfisher, and then to US retail giant Wal-Mart, whose takeover bid values the shares 37 per cent higher than at the beginning of 1999.
Our other recovery plays have fared less well. Bass tipped up from 881.5p to 1175p as Whitbread and Punch Taverns slogged it out for Allied Domecq's pubs, but has since fallen to 849p. Churchill China, our punt on Asian recovery, has hardly moved. But with Bass's Inter-Continental hotels performing well and recovery in Churchill's markets still on the cards, returns could still be forthcoming.
Of the safe bets, former conglomerate Hanson rose strongly from 541p to 632p in June and is still up despite recent profit taking. We like the group's strong position in the growing US construction market. Shares in Skillsgroup, the computer services company, have had a similar trajectory on the back of sensible acquisitions. It has suffered of late from profit- taking in the sector as a whole, but continues to look good value.
Seton Scholl, now SSL International after its merger with condom-maker London International Group, has drifted. The City wants more financial information on the merger's cost savings to reassure it that LIG was a safe play. We say the group's markets remain strong and the shares, at 750.5p, are a snip.
DCC soared to 585p in May but has since tumbled. The company, whose interests span energy and IT, is suffering from the rise in the oil price and fears over a freeze in IT spending ahead of the millennium.
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