Three key investment themes for 2012

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Simon Gergel, manager, RCM Merchants Trust and Allianz RCM UK Equity Income Fund.

Markets polarised in 2011. There were strong performances from large, high-yielding stocks in relatively defensive industries, such as pharmaceuticals and tobacco. But there were poor performances from more cyclical sectors, such as banks and mining. So the issue for investors is how to position yourself for 2012. The answer will be driven by three key themes.

Firstly, defensive firms are no longer as cheap as they were a year ago and aren't without risks, which are compounded by limited sector diversification. Secondly, although the economic environment seems challenging, there are many possible scenarios that could deliver positive surprises for investors. A genuine resolution to the eurozone crisis or a sustainable American recovery are two examples. Finally, there are an increasing number of opportunities among more cyclical stocks to buy good businesses at low prices. I've picked three stocks that reflect these themes.

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GlaxoSmithKline (LSE: GSK) is a classic defensive company whose revenues are relatively insensitive to the state of the economy. It is emerging from a prolonged period where many of its main drugs lost their patent protection and faced increased competition.

However, its future now looks more promising, with fewer patent expiries and several new products nearing the final development stage. The business is also well diversified, with a leading vaccines operation and a large consumer products division selling products such as Lucozade, Sensodyne toothpaste, Panadol and Ribena.

Furthermore, emerging markets, where health and consumer spending is rising fast, now represent over a quarter of sales. Although GlaxoSmithKline shares have appreciated in the last year, they still offer good value and yield 5%.

My next tip, BAE Systems (LSE: BA), is Britain's largest defence firm. Its low valuation reflects stockmarket worries over government expenditure cuts in Britain and America. However, I am less concerned about the likely size of any budget cuts in these markets owing to ongoing political pressure to maintain defence capabilities. As a result, we think the market undervalues BAE's exposure to strategically important programmes and key support activities.

For example, British marine work is underpinned by a 15-year government contract, and BAE is a leading supplier in the cyber-security and intelligence fields. It's also a major supplier to the F35 Joint Strike Fighter programme, which underpins its military aircraft operations well into the future. The biggest growth opportunities for the company are likely to come from international markets with the potential for significant export contract wins in markets such as Saudi Arabia, India and Australia.

United Business Media's (LSE: UBM) main business is running exhibitions around the world, with significant exposure to emerging markets. It is also active in PR distribution, data services and print magazines. The shares are out of favour with investors and trade at a low valuation. This is partly due to developments within the magazine business, which has been in structural decline but now only accounts for 5% of profits. I still rate UBM's strong business franchises, decent growth prospects and high cash generation.