Our top 10 stocks are beating the Footsie again …
... but only just. James Moore explains the strategy behind The Independent’s choice of companies
The Independent’s 10 stocks to follow are on course to beat the FTSE 100 for the fifth successive year – just.
The FTSE 100 closed the week at 6,625.25, compared to its year end of 6,749.09, representing a 1.8 per cent fall. Our Easter review of the 10 stocks shows the portfolio is in the black with a rise of … well, just 1 per cent.
And eight experts, who pick one company apiece, are also ahead of the game and they’re outpacing us at the moment. A portfolio made up of their eight choices has generated an overall gain of 2.1 per cent.
Our 10 are selected from suggestions made by each of our reporters, but as the long-standing investment writer and editor of this feature, I get to decide which ones make the final cut.
With the markets powering ahead last year, the strategy in 2014 was to mix and match, with a couple of down-at-heel companies which we felt could be recovery plays, and a couple of smaller companies with the potential to outperform whatever the market did. The remainder are larger, solid companies which I felt ticked a number of boxes, which were: to have an attractive valuation; the ability to capitalise on the global recovery; financial strength; and defensive qualities offering protection against a stock-market wobble.
It’s a sign of the vagaries of the market that barely a week ago the 10 were showing a gain of more than 7 per cent compared to where they are now.
But investors are always at the mercy of events, one of which was Babcock’s acquisition of Avincis (the maker of search and rescue helicopters) from its private equity owners. It’s already been written that adding whirlybirds to tanks and boats makes Babcock the ultimate boys’ toys company, but the stock has suffered as the rights issue shares used to fund the deal hit the market.
The acquisition is still supposed to be earnings enhancing in the first year, so we have good grounds for hoping the stock won’t long remain in the red compared to where it was on 31 December.
We wish the same could be said for Ladbrokes, which has proved by far our worst bet; its woes are down to performance – or the lack of it. We’d hoped that the group would show some signs of a long-promised turnaround this year. With the football World Cup, and tech whizzes Playtech upgrading the stodgy online offering, there were grounds for optimism, but so far it hasn’t materialised; the shares have been on a downward path.
Richard Glynn, the chief executive, has pledged the firm will be “match fit” by the summer. If his shot’s on target, Ladbrokes could recover quickly. It will need to, if he wants to keep his job.
Our other turnaround prospect, Man Group, has been a different story. A hedge fund manager that has been under a cloud, it has made a return to profit, is starting to see inflows of new money, and has been buying back shares.
But Genus, the genetics group which specialises in pigs, has been tripped up by the outbreak of a new virus among the porcine population of North America. A strong pound has also contributed to the share’s weakness.
However, our smaller company picks have both been winners that have done just enough to keep our portfolio in the black, despite our two big busts.
FusionEx makes business intelligence software and had the brokers at Panmure cooing at the start of the year. It seems the intelligence they provided was good. The company is involved in the world of big data, which is a term that gets IT professionals very excited because of the salaries on offer. The shares have, however, eased off quite a bit in recent weeks after soaring into the clouds at the beginning. But we’re not complaining just yet. It’s still up the right side of 20 per cent since we tipped it.
Having included oil major Shell in the 10 because we felt it was undervalued – particularly by comparison to scandal-hit BP – we felt the need to rebalance the scales, so to speak. Hence the selection of Good Energy whose performance has been outstanding.
Shell’s ahead on the year, but benefiting from dissatisfaction with the big six energy providers. Good Energy’s performance has been turbo-charged. Customer numbers rose by a third last year and profits doubled. The firm, which generates power from renewables, is expecting more of the same this year.
As for the rest, utility Severn Trent has posted a healthy gain, while IAG, the airline group which owns British Airways and Iberian, and IG Group, the spread betting and financial trading company, have more or less been treading water.
David Buik, Panmure’s market commentator, media personality and all round City legend, has proved his star is still in the ascendant by tipping tool-hire company Ashtead Group, which is the top performer among our experts’ selection. He is closely followed by Garry White, chief investment commentator at stockbroker Charles Stanley, whose contention that oil services group Petrofac was being undervalued by the market has been borne out.
Stephen Adams, from Kames Capital, flagged Carphone Warehouse as a stock to follow. It’s made some waves on the market with talks over a merger with Dixons.
The experts’ biggest disappointment to date has been Premier Foods, which has just completed a rights issue, although it has been the beneficiary of some positive analyst commentary recently.
The big worry for both portfolios? It’s only Easter. There’s still a lot of water to flow under the investment bridge before the end of the year.
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