The Share Challenge: Will anyone beat the professional at selecting stocks that will pay off?

Large-cap or small? Jazzy growth or reliable income? To tech or not to tech? These were the dilemmas facing our squads of amateur stock-pickers this week, as they raced to fill their portfolios designed to outperform the City fund manager at his own game.

Since last week, our three teams, the students from Moat community college, Leicester; the Lexar investment club in Surrey; and Sean O'Flanagan, co-manager of the Unicorn Free Spirit Fund, have each invested a notional £5,000 in five UK stocks. After a meeting of the rules committee we have lowered the minimum purchase price from 100p to 70p, to accommodate some of the teams' less pricier finds. The students are putting their faith in big-brand shares and takeover targets, while the investment club is delving into analysis.

Mr O'Flanagan is pinning his hopes on those undervalued cyclical names the stock market has forgotten. It is a diverse mix of stocks and strategies, but which will prove most profitable? We will follow the competitors through the year, with regular updates on their performance and tips on how you can smarten up your portfolio.

* Keep on top of the competition online. For full updates, prices, news and details on how you can start your own fantasy portfolio, visit the special Independent section at www.bullbearings.com

The Fund Manager: 'I'm feeling optimistic about my choices'

Sean O'Flanagan's fund is the best performer in the UK All Companies sector, according to Trustnet, with a 79 per cent return over the past 12 months. So Mr O'Flanagan knows a thing or two about stock-picking.

He says his selections for the share competition reflect Unicorn's focus on the industrial and business service sectors, both of which are benefiting from improved corporate demand for IT and recruitment services.

"This is the year management teams will reassert their ability to operate in an expansionary mindframe, rather than a cost-cutting mode," he says. "I hope to take advantage of that."

His selections are Harvey Nash, Morse, Linx Printing Technologies, Diagonal and ACAL. He has chosen to spread his £5,000 equally between the five to start with. Mr O'Flanagan is most bullish on Harvey Nash, the personnel specialist, whose year-end results were well ahead of expectations.

Like other recruiters, the company pared expenses and cut costs in recent years when business was weak, and the leaner firm is now profiting from renewed demand in the UK and in the US.

Linx is a small Cambridgeshire firm that makes the printing devices for store bar codes. It has benefited from rocketing sales in Asian markets, where strong consumer spending is driving shops to keep better track of inventories. ACAL, which makes IT and electronic components, is likely to report an improving order book, Mr O'Flanagan says, which should rub off on the share price.

"Generally, inventories are exceptionally lean and there's definitely potential for a sharp pick-up when its customers restock," he says. "I'm optimistic about this one."

The Investment Club: 'We need to be hands on if we are going to beat the market'

Since they began trading seven years ago, the Lexar Investment Club has developed a stock selection strategy that homes in on the market's most promising shares.

Crucial to their approach is the Elliot Wave Principle, a share analysis system based on historical price movements developed by Nelson Elliot in the 1920s. Gerry de Lacey, Lexar's chief analyst, says the concept is largely responsible for the club's 21 per cent return on its money last year.

Mr de Lacey is wary that the market's recovery will not last, and this has strongly influenced the team's selections for our competition. "We feel the market is trending sideways at the moment," he says. "We need to be more hands-on and be ready to take more modest profits. By using our monitoring and selection process through the year, we can beat the market."

Lexar has spread its portfolio. The largest investments are in Bookham Technologies, the telecom-component maker, and Taylor Nelson Softres, the media polling company. The brewer Greene King, the Mowlem construction group and Peter Hambro Mining round out the club's picks.

The team says its riskiest investment is Peter Hambro, the gold-miner. "It's a bit of a stretch, but gold still has a part to play in times of uncertainty," Mr de Lacey says. The price of gold has leaped in recent years and is hovering near $400 (£218) an ounce after being over $420, but the club members believe investors will continue to flock to the precious metal if the dollar remains weak. They are also encouraged by strong demand for the stock in foreign markets. "We might be more reluctant, but we feel confident because the big brokers in the Russian market are following it," Mr de Lacey says.

Lexar is bullish on Taylor Nelson, which members think will benefit from improving revenues in the media and advertising sectors. Add to that a solid balance sheet and strong earnings forecasts, and the share is a sure winner, in the club's eyes. "The company shows favourable fundamentals, backed by a modest P/E ratio and a decent dividend yield," Mr de Lacey says.

They also like Mowlem, the builder, which is involved in lucrative government-backed public finance initiative contracts. Mr de Lacey says: "Gordon Brown, does not seem to want to draw in his spending plans. These contracts are large, multi-year projects, which if secured, will underpin Mowlem's profit potential."

The School Pupils: The boys were so excited to get going with their portfolio, even the snow couldn't deter them'

Snow briefly cancelled classes at Moat community college, but that did not stop our team of 15-year-olds from braving their way to school for their investment class.

"The boys were all geared up to pick their stocks, so we came in anyway," Claire Jackson, the team's teacher, says. "They're just so excited to get going with their portfolio."

After the obligatory snowball fight, the boys got down to business and whittled down their favourite shares to the final five: Safeway, Manchester United, WH Smith, HSBC Bank and The Games Workshop. They are investing an equal £1,000 in each share.

With Man Utd and Safeway as two high-profile takeover targets in their mix, the teenagers have made sure they balance these opportunistic bets with solid high street plays, in HSBC and WH Smith.

They may be jumping on the Safeway bandwagon late in the game, but the team still thinks the share price will benefit as buyers scramble for last pickings before the shares convert into Morrison's next month. "We've been studying mergers and acquisitions in class, and Safeway was one of the case studies," Ms Jackson says.

The team is also betting that takeover rumours at Manchester United will prove fruitful, but can the footy stock continue the spectacular performance of their 120 per cent surge in the past 12 months?

With a market capitalisation of just more than £45m, Robotic Technologies is the students' dark-horse favourite. The small Manchester-based robot maker has struggled to cut costs in recent years, but management says it has turned itself around and has a healthy backlog of orders rolling in. Robots are the key to the future of industry, the students say, and the company will benefit from manufacturers who want to cut costs and automate their business processes. It's a long-term bet, and the teenagers plan on holding the share for the duration of the competition.