This has been another difficult year for the FTSE 100, due partly to its heavy weight in commodity stocks. The UK’s benchmark index was showing a loss of 7.8% (4% including dividends) as of 18 December. Most of the City experts who contributed tips to our personal view column beat this. However, only half did better than the FTSE 250, which was almost unchanged over the year in price terms, and was up by 2.4%, including dividends.Our top ten analysis is in no way scientific.
The tips are all given at different times of the year, so some have a big advantage over others. We ask for long-term ideas, whereas our calculations are just a snapshot taken over a short period. And we only consider capital gains when working out our rankings, ignoring dividends. With that caveat in mind, we review our top tipsters’ performance and find out their best ideas for 2016.
1. James Lowen
+29.23% – JOHCM UK Equity Income Fund
Construction supplies firm Marshalls (LSE: MSLH), my best-performing pick, has been helped by strength in its end markets and changes that its new management team have made to the business. Its strong share-price showing means its valuation is now less compelling. Retail property company NewRiver Retail (LSE: NRR) and packaging business DS Smith (LSE: SMDS) have also delivered good organic growth and made sensible acquisitions.
As for 2016, we see value in construction-related plays Severfield (LSE: SFR) and Morgan Sindall (LSE: MGNS), banks Barclays (LSE: BARC) and HSBC (LSE: HSBA), and BP (LSE: BP) and Rio Tinto (LSE: RIO) in oil and mining.
2. Johan Utterman
+21.20% – Lombard Odier Golden Age Fund
We still own St. James’s Place (LSE: STJ), Allergan (NYSE: AGN) and Pola Orbis (Tokyo: 4927) in our fund, but have taken some profits in St. James’s Place and Pola Orbis given their year-to-date share-price appreciation. Allergan looks most interesting today following the announcement at the end of November that it will merge with Pfizer. The shares currently trade at a 17% discount to the implied price, which should close by the second half of 2016. Earnings per share (EPS) gains should reach a high-teens percentage in a few years’ time.
We also like the cruise operators, especially Royal Caribbean (NYSE: RCL). Royal Caribbean is successfully executing its “double-double” programme: doubling of EPS and double-digit return on invested capital (ROIC) by 2017. Bookings for 2016 look robust. Fuel expenses should fall, given the declining price of oil. China is opening up as a new market and Cuba will represent a new destination, thanks to normalisation of relations with the US.
3. Justin Waine
+20.74% – Puma Investments
Our three selections benefited from a strong UK economy. FW Thorpe (LSE: TFW), a manufacturer of lighting systems, is the type of niche business we like, with outstanding margins and cash generation. Renew Holdings (LSE: RNWH) focuses on infrastructure maintenance and construction and is benefiting as the UK renews its ageing infrastructure. Recent results showed a strong growth in revenue, a big dividend increase and a positive outlook. Safestyle UK (LSE: SFE), the double-glazed windows company, continued to grow its market share.
We have been adding Conviviality (LSE: CVR), the UK’s largest franchised off-licence and convenience store chain, to our investors’ portfolios. Its acquisition of the largest independent distributor to the UK on-trade drinks sector could lift the combined business’s free cash yield to 8%-plus within two years.
4. Daniel Koller
+19.17% – BB-Biotech fund
I expect significant upside in our mid-cap stocks after the corrections seen towards the end of 2015. I would add to our holdings in Radius Health (Nasdaq: RDUS) and Agios (Nasdaq: AGIO). Both are expected to rally upon progress of their pipeline assets and both of them look to be attractive acquisition candidates.
5. Scott McKenzie
+15.78% – Saracen UK Income Fund
My previous selections reflected our preference for medium and smaller companies with good dividend growth prospects. STV Group (LSE: STVG) is an attractive media business on a low valuation. It should benefit from possible regulatory change boosting transmission fees for its content. FDM Group (LSE: FDM) has been a star performer and has enjoyed some re-rating. It is no longer cheap, but I would expect the firm to produce further strong growth.
Eurocell (LSE: ECEL) delivered its first results since its initial public offering (IPO). The UK building-products market has been subdued, but Eurocell continues to improve profit margins. We believe that the best is yet to come for the shares. We continue to hold all three firms.
My selection for 2016 is Rio Tinto (LSE: RIO). Falling demand in China has led to a collapse in commodity prices and miners’ share prices are at lows not seen for over a decade. Rio is financially robust and we see the current dividend yield of over 7% as secure. I would expect the shares to rise significantly should metals prices bounce from here.
6. Jean Maigrot
+15.76% – Newsmith
Jean was unable to update us on his tips. His picks were carmaker Peugeot (France: UG), up 31%. He also chose broadcaster ITV (LSE: ITV), up 23%, telecoms equipment group Alcatel-Lucent (France: ALU), up 21%, and telecoms network Telefonica (Spain: TEF), down 12%.
7. Walter Price
+14.74% – Allianz Technology Trust
We are more cautious about Apple (Nasdaq: APPL) over the near term than we were, as the phone cycle will lead to lower earnings in the next few quarters. However, we still like the stock over the long term: a price/earnings (p/e) ratio of 11 times is too low for a company that has such a strong hold on its customer base. The outlook for Salesforce (NYSE: CRM) and Palo Alto (NYSE: PANW) also continues to be good – better margins should still lead to high earnings growth.
Two stocks we would add to this list are Amazon (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT). They are the leaders in cloud computing and both should enjoy several years of strong earnings growth.
8. Blake Crawford
+14.06% – JPMorgan Europe
We still like jewellery chain Pandora (Denmark: PNDORA). It continues to deliver earnings upgrades due to faster store expansion, while falling gold and silver prices should improve margins. Euronext (France: ENX) remains one of our top picks. Good cash flow generation will provide management with flexibility to increase dividends, invest in new initiatives, or pursue acquisitions. Swiss staffing firm Adecco (Switzerland: ADENE) has fared less well. We still believe the stock offers good value, but near-term momentum appears weaker and margin headwinds greater.
Shipping company DFDS (Denmark: DFDS) looks attractive. It continues to improve market share and trades on an enticing valuation. Wind turbine company Nordex (Germany: NDX1) has seen buoyant demand due to increasing pressure to reduce carbon emissions.
9. Sandra Crowl
+9.68% – Carmignac
Since our recommendations at the start of October, Chinese internet firm Tencent (Hong Kong: 700) has seen strong advertising revenue growth and the recovery of PC and mobile games growth amid increasing competition. Insurer AIA (Hong Kong: 1299), which operates in 18 Asian countries, saw new business value rise 25% over the quarter, with margins growing a whopping 57%.
Shares in home appliance maker Haier Electronics (Hong Kong: 1169) were little changed, reflecting its sensitivity to the housing construction cycle, which is still in consolidation. We see inventory of unsold property reducing, especially in the top-tier cities where price growth is healthy, so 2016 should be better for Haier.
10. Ed Beal
+7.37% – Shires Income Investment Trust
We continue to be happy holders of each of the three businesses we discussed in May. The structural growth that we believe underpins the investment thesis for Aveva (LSE: AVV), Croda (LSE: CRDA) and Ultra Electronics (LSE: ULE) remains intact. Cybersecurity firm Ultra Electronics sells products aimed at those with a requirement for the highest level of security. We see it as being well placed to benefit from this long-term and growing trend. Chemicals group Croda is making progress in the more flexible regional personal-care market, thereby securing a growth opportunity that should last well into the future.
Software company Aveva has performed remarkably following the announcement by France’s Schneider Electric that it will take a majority stake in the business. The deal has been structured to allow existing Aveva shareholders to benefit from the immediate uplift in value, through a sizable return of capital. In addition it will retain a material stake in the enlarged business, which will have access to some of Schneider’s products and, importantly, its customer base.
A stock we like now is Rotork (LSE: ROR), the global leader in the design and provision of high-end actuators (a type of motor used for controlling valves in the oil and gas industry). The company has been hit by a reduction in demand from oil and gas customers and that has caused a significant decline in the share price.
However, it needs to be remembered that Rotork has a broad portfolio of products that serves more than this industry alone. The business remains well placed to deliver good growth in the future. A five-year dividend growth record in excess of 15% points to the company’s quality.