995, which could be a bumper year. Probably more by luck than judgement, I didn't offer any new year share tips in 1994, so I have nothing to apologise for. But the omens look so much better this time that I am choosing 10 shares.
Why do prospects look better? There are two main reasons. The first is that bond yields are now so high relative to inflation that they are more likely to fall than rise. This is bullish for shares. The other is the poor state of sentiment. Last January,investors were optimistic and share ratings were high. Now investors are demoralised and the yield on the FT All-Share index is double the rate of inflation. Yet the British economy appears to be in superb condition, with strong growth, low inflation, fast-improving government finances and an emerging surplus on overseas trade.
The key to prospects in 1995 could lie with Wall Street. Many pundits are bearish on US shares and there is renewed talk of more increases in US interest rates soon. But corporate America is in great shape, and the dramatic shift to the right politicallycould also be bullish.
Expect fireworks if the Dow Jones can move convincingly through the 4,000 level, which has been a ceiling for nearly a year. Problems in emerging markets, such as Hong Kong and Mexico, reinforce the attractions of US stocks.
My strategy is to pick shares in 10 companies that look hot. Any that decline by more than 20 per cent should be sold. Otherwise, the mini-portfolio should be held for a year. There is no particular theme to the selections, except that the companies are mostly trading strongly and all are well managed.
There are two financial share selections, fund manager Perpetual at 1,166p and the stockbroker and market-maker Smith New Court at 436p. Both have shown that with a following wind from favourable stock market conditions, they can raise profits dramatically. Perpetual has lifted funds under management from under £500m to £3.5bn since 1992 and is still taking in money at the rate of £60m a month. Current-year profits should top £40m for a price-earnings ratio close to 10 and dividend yield around 5 per cent. Smith New Court can expect profits to fall sharply from last year's phenomenal £95.2m, but is going to attract renewed buying interest as soon as stock market activity starts to recover. It may also be a target if the abortive Warburg merger is a harbinger of a new round of mergers in the financial sector.
Strong growth in telecommunications markets worldwide provides a great opportunity for suppliers of telecoms equipment. Telspec, at 378p, makes equipment to improve the performance of fixed-wire systems and is increasingly addressing global markets. An order book of more than £40m compares with sales of £l3.7m for the first half of 1994 and £17.6m for the whole of 1993. Profits are expected to treble between 1993 and 1995. The cellular equipment supplier Filtronic Comtek, at 175p, is arguab ly growing even faster, and has announced that it is building factories in the US and UK to treble capacity.
After several subdued years, advertising spending is growing strongly. This is good news for Scottish Radio (formerly Radio Clyde), at 559p, which dominates the radio market across most of Scotland. Sales are strong, with radio generally gaining market share, pointing to a bumper year, with profits probably exceeding analysts' expectations.
In the newspaper industry, Adscene, at 305p, best known for its free newspapers in Kent, is trading strongly and reinforcing growth with well-judged acquisitions. By 1996, the p/e should be heading down towards 12, which is excellent value for a fast-growing media group.
Two out-of-favour sectors are retailing and building materials.But shoe retailer Stylo, at 200p, best known for its Barrett and Instep chains, is trading so well that it recently made a profit in the traditionally loss-making first half for the first time in 30 years. Good growth has continued, so third-party profit forecasts of around £5m could be far too low.
Dorling Kindersley, a publisher of illustrated books, at 328p, has had a disappointing year in profit terms, but it is making dramatic progress in putting together a portfolio of products for the CD-Rom market, which could see explosive growth later in the decade as the players become increasingly affordable.
Vinten Group, at 529p, supplies equipment for the worldwide broadcasting market, with manufacturing plants in the UK, US and Italy, and sales and service companies in France, Germany, Japan and the US. It is a strong beneficiary of reviving global economic growth.
The parcels delivery specialist Business Post Group, at 175p, had a rocky start to quoted life with an unexpectedly flat performance in the first six months after its 1993 flotation. But it has been picking up speed strongly since and is now benefiting from heightened economic activity as well as gains in market share. A 60 per cent rise in profits to March 1995 is expected, with good growth likely to continue making the shares attractive.Reuse content