Our experts' share picks for 2011
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Bank stress tests, fresh rounds of quantitative easing, fears of a double dip and problems across the eurozone have ensured a bumpy ride for stockmarket investors in 2010. The FTSE 100 started the year around 5500 and finished the year only a smidgeon up from that.
At the start of July 2010, we saw banks take a nosedive, as fear grew of a dreaded double-dip recession, and the FTSE 100 touched 4812.
Fast forward just four months and investors had perked up considerably at the news of a $600 billion (£380 billion) splurge of printed money in the US. On 4 November, the FTSE 100 soared to 5862, its highest since 2008.
Continued low interest rates and some better-than-expected company profits also helped keep the stockmarket fairly buoyant in 2010. But fund managers and stockbrokers believe volatility will continue in 2011 and that government spending cuts and tax rises will be painful.
Despite the uncertainty, our experts have picked their shares to watch out for in 2011.
CARNIVAL - price 2622p, yield 0.5%
"This cruise company's long-term returns are above the cost of capital and it has seen a rapid improvement in cashflow. We expect a 2% rise in yield in 2011, a 20% rise in share price and a dividend increase."
Jeremy Thomas, chief investment officer, UK equities, RCM
BOOT (HENRY) - price 88.5p, yield 2.8%
"It has almost no debt. Its share price is 91p, but the real value of the company's shares is £2. We expect the dividend to increase in 2011."
HARGREAVES LANSDOWN - price 493p, yield 1.7%
"We like its strong distribution network and high (70%-plus) recurring revenues. There are long-term growth drivers of increased savings and great potential in the SIPP market."
Anthony Cross, manager of the Liontrust Special Situations fund
RWS - price 273.5p, yield 4.4%
"This firm is the largest patent translation business in Europe and we like that it is exposed to growth in emerging markets. The shares are inexpensive at around 10 times earnings, with a 4% plus yield."
CABLE & WIRELESS WORLDWIDE - price 61.7p, yield 7.3%
"The shares overreacted to the loss of government business, so it's attractive on valuation grounds. It has good momentum in winning new business, it's moving into positive cashflow and profits, and the dividend yield is high."
Tom Gidley-Kitchin, analyst at Charles Stanley
ASTRAZENECA - price 2996p, yield 5.2%
"The share price could rebound in 2011, but even if it doesn't, it's a bargain basement stock and a solid dividend payer."
Jeremy Batstone-Carr, director of private client research at Charles Stanley
EXPERIAN - price 735.5p, yield 2.2%
"This FTSE 100 share is looking at ways of exploiting its assets, and its share price could move up in 2011."
Total group revenue improved to $2 billion (£1.3 billion) in the six months to 30 September 2010, compared with $1.9 billion the year before.
Andy Parson, advice team manager at The Share Centre
CHURCHILL MINING* - price 108p, yield nil
"This AIM-listed company is valued at just £113 million, but it"s expanding and is doing well in emerging markets."
* Not eligible for ISAs.
This article was originally published in Money Observer - Moneywise's sister publication - in January 2011.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.