MoneyWeek’s top ten share tipsters of 2014
We review our top share tipsters’ performance and find out where they stand on their 2014 tips and what their best ideas are for 2014.
The past year has been a more difficult one for stocks than 2013. Global equities as represented by the MSCI World Index still posted a gain of 10% in sterling terms by 22 December, but the FTSE 100 was down 3%. Most of the City experts who contributed tips to our "personal view" column comfortably beat the FTSE. However, less than half matched the average global return, reflecting the UK focus of many of their picks.
Our top ten analysis is in no way scientific. The tips are all given at differenttimes 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, ignoring dividends. With that in mind, below we review the performance of our top share tipsters, and find out where they stand on their 2014 tips and what their best ideas are for 2014.
JP Morgan Claverhouse IT
The principal theme of most of my selections was one of "self help".The firms that I selected have management who are relentless in driving improvement from their businesses.
For example, Dixons (LSE: DC) has transformed itself from a lowly regarded, high street vendor of electrical and white goods to the "go to" retailer for electrical and internet-related consumer devices. The merger with Carphone Warehouse is a strategically good deal which should consolidate their competitive advantage.
I expect this to be an important theme in 2015 as well, so I am happy to keep most of 2014's selections. But I would switch from Legal and General (LSE: LGEN) into the fast-growing pharmaceutical company Shire (LSE: SHP). I would also take profits in easyJet (LSE: EZJ) to invest the proceeds into BTG (LSE: BTG), another dynamic pharma firm.
Henderson China Opportunities
Car maker Great Wall Motor (HK: 2333) performed well, but now trades on a higher valuation. So we advocate switching to its peer Brilliance China (HK: 1114), which trades on similar valuations despite having superior technology and a stronger brand.
Stockbroker Citic Securities (HK: 6030) rose with the rallying stockmarket and is now richly valued. We suggest taking profits and recycling proceeds into YY (US: YY), a US-listed Chinese internet company with a fast-growing real-time interactive social platform. The shares are valued cheaply at 13x forecast 2015 price to cash flow. Lastly, two big acquisitions have clouded the immediate outlook for tech firm Lenovo (HK: 992), but that's no reason to sell one of the best managed companies in China. Sit tight.
JOHCM UK Growth
All three of our tips have made strategic progress. AstraZeneca (LSE: AZN) continues to improve its R&D productivity, boosting the company's drug pipeline.
It remains a buy. Augean (LSE: AUG) has produced great results and refined its strategy. The directors have been buying shares and readers may want to follow them. CSR (LSE: CSR) received an all-cash offer in October at a material premium. The potential upside from here is now more modest, so take profits.
Our tip for 2015 is NCC Group (LSE: NCC), one of the world leaders in cyber-security. The recent Sony incident has highlighted just how crucial strong and credible cyber-protection is and how devastating such attacks can be. This is only going to become a bigger, more strategic problem, creating tremendous opportunities for those such as NCC who can solve it.
Markets are not perfect and there are times when they clearly overreact. These periods of overreactions are the life blood of contrarians. So it was when investors were panicking about the spread of the Ebola virus in mid-October that I recommended buying travel companies, on the basis the threat was overstated.
After a two-month surge, these shares International Consolidated Airlines Group (LSE: IAG), easyJet (LSE: EZJ) and cruise operator Carnival (LSE: CCL) now look fully valued. The contrarian stance of buying when others sell suggests selling now that others are buying again.
BlackRock Smaller Companies Trust
I remain a fan of both CVS Group (LSE: CVSG) and Advanced Medical Solutions (LSE: AMS). CVS owns more than 270 veterinary surgeries in the UK, giving it defensive earnings that grew 19% in the year to June. Advanced Medical Solutions is a more international business than CVS. It supplies a range of advanced wound care and wound closure products. Its December trading update indicates it continues to achieve strong organic growth. Northbridge Industrial Services (LSE: NBI) is exposed to the oil sector and it remains to be seen what the falling oil price will mean for its sales.
Amid global uncertainty, the US economy looks set to do well in 2015. So I like 4imprint (LSE: FOUR), which supplies promotional products and gets most of its profits from America. Its earnings record has been excellent and current growth is healthy. Strong cash generation should allow good dividend increases.
JOHCM Japan Dividend Growth
We pickedNitori (JP: 9843), a furniture retailer, because we believed that investors were underestimating the strength of its business model. The company generates higher profit margins than Ikea and is continuing its unbroken run of increases in profits and dividends.
Our recommendation of Sekisui House (JP: 1928) came after housing stocks had been hit by the consumption tax hike. It rallied after announcing that it would sell some property to a real-estate investment trust. Daihatsu (JP: 7262) fared less well due to a sudden decline in domestic demand for mini vehicles. But this Toyota subsidiary still looks interesting.
We expect the Bank of Japan's policies to lead to asset price inflation. For this reason, real-estate stocks look attractive. Hulic (JP: 3003) owns a portfolio of centrally located properties and is redeveloping them at a time when demand for such office space is on the rise.
Our three picks were chosen for their exposure to structural growth trends or inelastic demand. They have come into their own during a volatile fourth quarter. A late surge from Victrex (LSE: VCT) following solid full-year results lifted the shares to new all-time highs. Both Imperial Tobacco (LSE: IMT) and Johnson Matthey (LSE: JMAT) have also performed well. We remain positive on the long-term outlook for all three.
Virgin Money (LSE: VM), which floated in November, is a recent buy recommendation. A simple UK retail banking play with no legacy regulatory issues and a strong capital position, this "challenger bank" is well prepared for the post-financial-crisis regulatory framework.
JP Morgan Europe Dynamic ex-UK
John was unfortunately unable to get back to us on his tips. His top-performing pick was airline Ryanair (LSE: RYA), which was buoyed by rising oil prices. He also selected French telecoms firm Orange (Paris: ORA) on the basis of consolidation and improved pricing power in the sector. Tyre manufacturer Continental (Dax: CON), car maker BMW (Dax: BMW) and LEG Immobilien (Dax: LEG), a play on real-estate demand in Germany's North Rhine-Westphalia region, rounded out his tips. German growth disappointed in 2014, but all three tips ended up in the black.
Samskip, a global logistics company
Iceland's economy has staged a rebound, with a growth rate above 3%. It wasn't a painless recovery: Iceland's people had to endure economic restructuring that hit them squarely in their pockets the Icelandic krona lost half its value. But it's reassuring that banking has been replaced by tourism, energy and IT businesses.
We continue to believe that Icelandair (Reykjavik: ICEAIR) will benefit from increasing tourist and business travel. VIS Insurance (Reykjavik: VIS), the country's leading provider of non-life insurance, should enjoy steady growth as households and corporates have more to spend.I would now also recommend N1 (Reykjavik: N1), Iceland's largest oil distribution company, as a beneficiary of the falling oil price.
Buying discredited stocks is referred to as "catching a falling knife". But the risk can be minimised by looking at the price to book value ratio. Barclays (LSE: BARC) was trading at a large discount and has held up well since, helped by a decent domestic economy. The political expediency of ever larger fines and levies on the banks is a significant risk, but the outlook remains positive. The Japanese economy has been better than some data suggest, and slow progress continues on reforms. This continues to support stocks. However, yen depreciation emphasises the need to hedge Japanese equities into sterling. My third pick, Diageo (LSE: DGE), was purchased as a long term holding, supported by an excellent portfolio of strong drink brands. It has held up well, despite wavering consumer spending.
Where might we look for the next falling knife? I suggest Rio Tinto (LSE: RIO). Its sector now has management teams with a proper focus on shareholder value, and in the absence of further commodity price weakness, offers great value.