Who’s the best of the New Year tipsters?
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Every year the nation’s newspapers and financial magazines stick their necks out and tip their favourite stocks for the New Year. Who’s most likely to have got it right?
Some things in life are immutable. Just as the gaudy delights of December lead inevitably to the hangovers and half-baked resolutions of January, so the passing of the old year leads to a crop of fresh tips from the press.
Santayana said that those who cannot remember the past are condemned to repeat it. However, those with any recollection of the best UK stocks from 2005 would be delighted if history were to repeat itself. The best-performing index groups from the FTSE All-Share last year were mining (+63%) and aerospace and defence (+54%). The latter category is heavily weighted to BAE Systems, which at the time of writing had just recorded a new 52-week high. As any technical analyst will tell you, new highs are bullish.
The FTSE’s third-best performers in 2005 were the non-life insurers (+37.3%), but most sectors did well. Only one, leisure goods (–15.4%), did particularly poorly as prospects for retailers deteriorated in the face of higher rates and a slowing housing market.
That was the year that was. What stocks do UK tipsters favour for 2006? Among Shares magazine’s picks are Caffè Nero (CFN) – acceptably frothy, perhaps – and Oxus Gold (OXS on Aim), whose shares have had a great recent run. Despite retailers’ travails, Shares also plumps for Sainsbury (SBRY).
The resources story seems set to remain popular; among Investors Chronicle’s picks are Alkane Energy (ALK on Aim), which produces coal-mine methane, and Clipper Windpower (CWP on Aim), which manufactures wind turbines. One tip that many overextended consumers will be able to relate to is Debt Free Direct (DFD), an “undisputed leader” in consumer debt reduction. Very much a stock for our times.
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Questor in The Daily Telegraph tips a number of ‘recovery stories’ – a euphemism of sorts for distressed situations, at least from a chartist’s perspective. Among them are Games Workshop (GAW) and shoemaker Lambert Howarth (LMBT). Contrarian, yes, and a little brave.
Tempus in The Times favours, among others, HSBC (HSBA) – a stock I also like as a relatively yieldy China play. Tempus and The Sunday Times also tip ITV (ITV), a media firm I have less interest in, citing that perennial chestnut, “bid speculation”.
However, my top of the tipsters for 2006 would be Midas in The Mail on Sunday.
Some of my favourite technical analysts, Nick Glydon and Nicola Merrell of Redburn Partners, foresee the mining sector continuing to outperform in 2006 and also think that chemicals, aerospace and engineers all have a technical platform for outperformance. Redburn also believes that financials have a favourable backdrop. From a negative technical perspective, Redburn envisages likely problems for the auto sector, food and drinks stocks, media and telecoms.
With these views in mind, Midas looks to be tipping the right kind of thing. I share Midas’s enthusiasm for Anglo American (AAL) as a diversified minerals play, despite its 50%-plus share price rise over the past year. Ditto Midas’s endorsement of the energy sector (Northern Petroleum, NOP, and Polyfuel, PYF). Midas also likes Legal & General (LGEN) – another stock reaching new highs at the time of writing and which chimes with Redburn Partners’s positive view of financials.
Lyndon Johnson once commented that while we can draw lessons from the past, we cannot live in it. UK investors will be lucky to repeat last year’s returns from the FTSE. Individual stocks, however, are another dimension of risk and return altogether, and some will undoubtedly thrive during the year ahead.
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