The recent actions of the European Central Bank, combined with more positive data from the US, have triggered an impressive stockmarket rally in early 2012. Despite this, we continue to be concerned about potential outcomes from the eurozone crisis. So we have decided to keep most of our fund defensively positioned for now.
The overriding aim for us is to find well-run businesses with robust balance sheets which are capable of converting resilient yearly profits into dividends. We aim to find good value in defensive and economically sensitive shares.
We are also happy to go looking for both growing and mature companies in order to achieve our investment goals. Highlighted below are three stocks we believe look appealing.
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For starters, shares in Balfour Beatty (LSE: BBY) a global infrastructure, construction and support services company are likely to offer an attractive return. Admittedly, Balfour faces weak demand in some of the markets in which it operates. However, this means that investor expectations for sales and profits are currently at a low level. In our view, current targets are likely to prove very achievable.
Once the company's pension fund deficit, cash balance and private finance initiatives (PFIs) are taken into account, Balfour has what we consider to be a very solid balance sheet. This should allow it to cope with any sales weakness in business areas which are exposed to weak economic growth.
We believe that its shares are available at an undemanding valuation, and that, with around a third of profits currently generated in the US, it is well placed to benefit from further recovery in the US economy.
Meanwhile, investor expectations for earnings growth at business and consumer broadband supplier Talk Talk Telecom Group (LSE: TALK) have been restricted by the prospect of competition from BT through the roll-out of its high-speed Infinity broadband. We believe that these fears are overdone.
In fact, we think demand for Talk Talk's low-cost service could prove fairly robust given the likely dominance of value considerations in a tough consumer spending environment. Combined with resilience in its customer base of around five million users, we expect earnings growth to be supported by an improvement in profit margins. This is largely thanks to management's focus on cost efficiencies. Earlier this month the company issued an upbeat interim trading statement in which it was able to raise its earnings guidance for the current financial year by 6%.
Centrica (LSE: CNA) is a third company whose shares we currently view as being good value. The recent rally in the stockmarket has been dominated by those companies perceived as cyclical or with emerging-market exposure.
On the other hand, shares in Centrica which owns British Gas have been left behind. But we believe that the company's shares offer excellent value it has strong assets which generate a high level of profits, and a good dividend policy, expected to generate a yield of about 5.6% per share this year, according to Bloomberg analyst consensus.
