Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Andrew Morris, managing director of Rowan Dartington's Signature division.
The S&P 500 has just recorded its best first-quarter performance since 1998. That followed better-than-expected US consumer spending data and encouraging jobs data US unemployment is at a two-year low. Solid US economic data in turn helped the yen to significantly weaken against the US dollar, buoying the Japanese market. Indeed, the world's stock markets have performed particularly well, given the heightened levels of uncertainty that are currently being faced.
Closer to home, the FTSE 100 recently breached 6,000 for the first time since the beginning of the turmoil in the Middle East, and following the Japanese earthquake. Encouragingly, aside from market anxieties over the Japanese natural disasters, the FTSE 100 has been relatively stable over the first three months of the year.
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However, the UK economy suffered a manufacturing growth slowdown in the first quarter. That prompted fresh concerns over the strength of the economic recovery, further highlighted by a report suggesting that the average UK household's disposable income fell by 0.8%, the first fall since 1981. On the other hand, gilt yields at the shorter end still rose, as inflation data remained stubbornly above the Bank of England's 2% target.
In this climate, companies with substantial overseas earnings have remained in favour, with resource-based companies strong on the back of high commodity prices over the first quarter. Here are three firms I like right now.
CAPE (LSE: CIU) is my first pick, as an example of a company that ticks most of my boxes. The firm provides industrial services including access, insulation, painting and cleaning to energy companies such as BP, Exxon Mobil and BHP Billiton. It is well placed to benefit from the recovery in capital spending by the oil majors, and we expect that it will be included in the FTSE 250 index later this year. Oil services companies have begun to outperform oil producers as investors focus on the long term investment opportunities generated by a higher oil price.
My second pick is New Britain Palm Oil (LSE: NBPO), which is Papua New Guinea's largest palm oil provider. One of the lowest-cost producers and at the forefront of the move to sustainable palm oil, NBPO has opened a refinery in the UK to supply European food manufacturers with traceable palm oil.
NBPO was not affected by the recent Japan earthquake, and a recent study showed that vegetable oil stocks are at 20-year lows, so any further supply disruption could drive prices up. Strong cash flow suggests that NBPO which currently sells up to a third of its forward sales to capture a portion of this higher pricing could lift the dividend significantly in 2011.
My final stock pick is IQE (LSE: IQE), a global leader in compound semiconductor technology. It manufactures the material used in wireless and optical applications such as smart phones.IQE is a major beneficiary of the move into 4G, which requires more chips per handset. It remains an attractive way of investing in the global wireless and consumer opto-electronics markets. With recent profit-taking resulting in the shares being hit by a 20% fall, we see a buying opportunity.
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