Ten giants of the future for elephant baggers

published 25 January 2006

If you want "low-risk investments that offer rising prices and rising dividends", says Shares, you are the market equivalent of an elephant hunter looking for large firms that dominate their industries, have significant pricing power, top-flight management and operating systems, and "employ their financial resources to stay ahead of the herd".

This means buying shares in the likes of ARM Holdings (ARM, 130p); BAT (BATS, £12.42); BP (BP, 662p); Carnival (CCL, £33.56); Diageo (DGE, 829p); GlaxoSmithKline (GSK, £14.54); Rio Tinto (RIO, £28.22); Rolls-Royce (RR, 423p); Tesco (TSCO, 312p); and Vodafone (VOD, 124p).

But while holding existing elephants is generally a secure way to make solid returns, there may be bigger profits in trying to spot the elephants of the future. This isn't easy, but academics have identified several characteristics worth looking for. These include dominance within their industries, high barriers to entry but low barriers to exit, a high return on capital, good margins, a safe dividend, consistent earnings and cash-flow exceeding those earnings.

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Screening for these characteristics, Shares identified ten potential future giants: Haynes Publishing (HYNS, 380p); Clarkson (CKN, 900p); Braemar Seascope (BMS, 398p); Hornby (HRN, 180p); Lincat Group (LCT, 533p); Stanley Gibbons (AIM:SGI, 95p); Mayborn Group (AIM:MBY, 462p); FW Thorpe (AIM:TFW, 328p); Findal (FDL, 525p) and Premier Direct (AIM:PDR, 145p).

Charles has previously written for the MoneyWeek, giving readers his share tips regularly and covering other topics on the side such as stock markets and the economy. He has also written for The Business, Shares, Investors Chronicle and The Evening Standard, and Charles has presented on LBC and been a guest on BBC One and BBC World. Aside from his journalist background, Charles graduated as a chemist from the University of Oxford specialising in ligand gated ion channels.