Ten giants of the future for elephant baggers

By Author Charlie Gibson Jan 25, 2006

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If you want “low-risk investments that offer rising prices and rising dividends”, says Shares, you are the market equivalent of an elephant hunter – looking for large firms that dominate their industries, have significant pricing power, top-flight management and operating systems, and “employ their financial resources to stay ahead of the herd”.

This means buying shares in the likes of ARM Holdings (ARM, 130p); BAT (BATS, £12.42); BP (BP, 662p); Carnival (CCL, £33.56); Diageo (DGE, 829p); GlaxoSmithKline (GSK, £14.54); Rio Tinto (RIO, £28.22); Rolls-Royce (RR, 423p); Tesco (TSCO, 312p); and Vodafone (VOD, 124p).

But while holding existing elephants is generally a secure way to make solid returns, there may be bigger profits in trying to spot the elephants of the future. This isn’t easy, but academics have identified several characteristics worth looking for. These include dominance within their industries, high barriers to entry but low barriers to exit, a high return on capital, good margins, a safe dividend, consistent earnings and cash-flow exceeding those earnings.

Screening for these characteristics, Shares identified ten potential future giants: Haynes Publishing (HYNS, 380p); Clarkson (CKN, 900p); Braemar Seascope (BMS, 398p); Hornby (HRN, 180p); Lincat Group (LCT, 533p); Stanley Gibbons (AIM:SGI, 95p); Mayborn Group (AIM:MBY, 462p); FW Thorpe (AIM:TFW, 328p); Findal (FDL, 525p) and Premier Direct (AIM:PDR, 145p).

Published in Tips & advice | More articles by Charlie Gibson

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