How the papers’ share tipsters fared in 2019, and what they've picked for 2020
MoneyWeek's annual roundup of the past year's share tips from the rest of the UK's financial press, and a look at what they've picked for the year ahead.
2019 brought a welcome return to profitability for the media’s share tipsters. With indices in the UK and overseas roaring back to life even the worst performer (The Independent, whose 6.10% gain earned it the wooden spoon this time) managed to do better than the top-performing portfolio in the previous year.
The Evening Standard had topped the table for two years running and was the only publication not to lose money in 2018. This year it fell back to the middle of the pack with a 15% average gain, including dividends.
That is a creditable performance when you consider that the portfolio was dragged down by Thomas Cook. The ill-starred travel group went bust in September. That rotten tip was apparently the work of “an ex-member of staff… Shame on him”. The paper’s best advice was to buy investment platform AJ Bell, which returned 77%.
The new champion
The new share-tipping champion is the Investors Chronicle, whose eight tips produced an average total return of 37%. The publication credits its success to the market’s hunger for “quality” businesses last year. Its best advice was to buy the London Stock Exchange Group, which returned 82% in a year marked by major activity on the mergers & acquisitions front. Its worst tip was BT, which lost investors 8.4%.
This year’s runner-up was Money Observer, whose twin “value” and “speculative” portfolios returned a combined average of 33% last year. Car-testing equipment maker AB Dynamics brought investors joy with a 79% return, while highly-rated Fever Tree lost 9% as it struggled to live up to bullish expectations.
The Sunday Times did the best of the newspaper tipsters with its 2019 selection returning 30.8%. That was thanks in no small part to Warhammer miniatures seller Games Workshop, whose 102.5% gain proves that “there is still life in retail if you know your customers and get the products right”. The gold price advanced in 2019 but investors who followed the newspaper’s suggestion to buy Fresnillo were left unrewarded – the Mexican miner shed 30.2%. US publication Barron’s secured a creditable fourth place, with a bet on Apple returning 66.5%. Still, the portfolio’s 24.6% gain looks less impressive when you consider that it barely outperformed the S&P 500, which returned 24.3% last year.
Thomas Cook’s demise also played a role in Shares magazine’s 23% portfolio gain. Its suggestion to buy travel retailer On The Beach (OTB) appeared misguided after a profit warning in August. Yet Thomas Cook’s collapse in September brought a “once-in-a-lifetime opportunity to chase new market share”, helping OTB to bounce back and finish the year with a 31.4% gain. Turnaround story Next delivered a stonking 75.8% total return last year. The Daily Mail’s position in the middle of the pack hides a particularly wide variation in returns. A punt on outsourcer Serco ended the year 70% in the money but Aim-listed Regal Petroleum dragged down the wider portfolio with a 59% loss.
Long-time readers will not be surprised to find The Independent and The Guardian in the bottom three once again. Readers who followed the latter’s advice to buy Burford Capital ended the year 57% underwater. The Independent’s tip to buy packaging maker DS Smith returned 29%, but NMC Healthcare’s 36% loss dragged down the Indy’s overall performance. As we went to press neither publication had produced a 2020 portfolio.
The Daily Telegraph rounds out the terrible trio after what the paper describes as “not a vintage year”. Most of its tips made money. Yet Aston Martin proved “an absolute car crash” that almost wiped “out everyone else’s good work”. The year down more than 56%. Annual portfolios are presented in a spirit of seasonal fun. Comparisons are inexact as some publications liquidate their picks in mid-December. Long-term investors will not wish to buy and sell after just one year, but the suggestions opposite hopefully contain a few bright investing ideas for a new decade.
|Share tips for the year ending...|
|The Sunday Times||26.06%||12.17%||-20.10%||30.80%|
|The Daily Telegraph||-2.21%||21.53%||-13.40%||9.60%|
... and what they’ve picked for the year ahead
Begbies Traynor, the UK’s largest insolvency practitioner by volume, derives two-thirds of its revenue from countercyclical activities. That makes it a valuable hedge against a weak economy, but a 29% jump in profits in the six months to the end of October shows that it doesn’t need a recession to perform well (88p).
A net 20% of households switched to British Gas in November thanks to a focus on cheaper tariffs, which may herald the start of a turnaround for owner Centrica. In any case, on a 2020 price/earnings ratio of 9.5 the shares look so “beaten up” that the risk-reward ratio is favourable (90.5p).
Premium chocolatier Hotel Chocolat is delivering “tasty growth” in its digital operations and is preparing to take a bite out of the huge US and Japanese gifting markets. This growth story is “just getting started” (423.5p).
Greetings cards-to-stationery maker IG Design is growing thanks to deals with major retailers on both sides of the Atlantic and has a progressive dividend policy (697p). Businesses and governments are increasingly shifting services online, which opens up a huge multi-year opportunity for IT specialist Kainos. No debt also makes for a “bulletproof” balance sheet (718p).
With the PPI issue largely behind it and the UK outlook clearer, now is the time to buy Lloyds Bank and its generous 5.5% dividend yield (64p). Electrical and wiring products supplier Luceco could be in line for a rerating this year thanks to its LED and high-margin wiring accessories operations (116p).
Things are looking up for the housing sector in the wake of the Tories’ election win, while Redrow’s focus on premium homes should help it to avoid the quality controversies besetting some builders at the budget end of the market (729.5p). Schroders’ £444bn in assets under management makes it one of the few British financial firms able to stand “shoulder-to-shoulder with its international peers”. It also has room to grow in the US (3,346p).
The airline sector is often a source of disappointment for investors, but Wizz Air’s focus on fast-growing central and eastern Europe gives it a structural advantage (3,899p).
Shares in Google parent Alphabet gained nearly 30% in 2019 but still look reasonably priced when you strip out losses in the autonomous driving and “other bets” businesses. A decision to boost share repurchases or pay a dividend could yet boost the share price ($1,350). Amerco is the leading provider of do-it-yourself moving vehicles in America and also has a fast-growing self-storage operation. A lack of analyst coverage means that it remains a “well-kept secret” ($354).
Anthem is a health insurer that covers 40 million people. On 12 times projected 2020 earnings the shares appear cheap, although health insurers will suffer if a left-wing democrat wins October’s US presidential election ($284). Warren Buffett’s Berkshire Hathaway lagged the US market last year amid concerns about a huge and growing cash pile, yet this high-quality defensive portfolio now looks cheap ($225.25).
Cable-provider Comcast has been diversifying in recent years, notably acquiring Sky in Europe in 2018, and it also plans to spend $2bn on launching its own streaming service. It looks more attractively priced than industry peers ($43).
Dell Technologies has proven a disappointment since going public in 2018, with the shares up just 1% in 2019. Yet a $50bn stake in software group VMware and a hardware business that makes $90bn in annual sales suggests that the group’s $36bn market valuation is too low ($49).
Pfizer’s plans to spin off its generic drugs business has not gone down well on Wall Street, but the group has a strong portfolio and pipeline of new treatments that could deliver “10%-plus yearly gains in earnings per share” through 2025 ($38). Energy has been the worst stockmarket sector over the past decade, but Royal Dutch Shell’s focus on dividends – the shares yield 6.5% – make it the best pick among the supermajors (2,152.5p).
This year United Technologies completes its merger with Raytheon, creating a bigger and more focused aerospace and defence play. That could boost the shares because “Wall Street likes simple investment stories” ($149). Newly-merged ViacomCBS is a “content powerhouse” with 20% of US TV viewers and trades on a “rock-bottom” six times 2020 earnings ($38).
Weakening Chinese demand means there is plenty of bearishness about copper. Yet with the supply outlook tight for the coming decade, contrarians should take a look at copper miner Antofagasta (928p). Well-received new products and a strong performance in China make this a good time to buy a “revitalised” Burberry (2,120p).
“It’s been a long road to recovery”, but the UK economy is gradually gathering strength, which should benefit cyclical businesses such as tool and equipment lender Speedy Hire during the year ahead (75p). Catering hire and laundry firm Johnson Service is the biggest player in a fragmented market where “scale is key” (199p).
Private rental developer and landlord Grainger has a good position in the in-demand private rental sector and the weak pound could attract interest from an overseas buyer (302p). News that information and events group Relx is to sell Farmers Weekly, its final print magazine, confirms its transformation into a digital business focused on data analytics and artificial intelligence. Investors should buy into its “digital delights” (1,894p).
Insurance group Phoenix’s £3.2bn megadeal to buy ReAssure is not without risks, but a good record and the potential for substantial cost savings and cash payouts means this year could bring a rerating (752p). Filtration and environmental tech business Porvair is a good way to play the growing environmental, social and governance (ESG) investment trend (613p).
This could prove the year that banking comes “back into fashion at last”. Barclays, which is currently yielding just under 4%, is a solid business that “could prove a pleasant surprise” (182p). This could also be a big year for “long-suffering shareholders” in RBS: bank shares have been among the post-election winners and the government may yet decide to sell off its remaining stake (244p).
Former WPP boss Sir Martin Sorrell has already built S4 Capital, his new marketing services group, into a £850m business and 2020 should bring more deals (196p). Big changes are under way at “struggling high-street favourite” Marks & Spencer this year as the Ocado tie-up advances and the clothing operation turnaround starts. The “shares are at a low ebb” (216p).
The Neil Woodford debacle hammered shares in Hargreaves Lansdown at one point last year, but with talk of “a pile of cash waiting to be poured into the UK stockmarket”, brokers “should be quids in” (1,963p). Sheffield-based video games developer Sumo Digital could be on the verge of cracking China’s vast market following publishing giant Tencent’s recent decision to take a 10% stake (186p).
Lighting fixtures maker FW Thorpe is an increasingly technology-focused business following “waves of innovation” in the sector and has excellent direct relationships with its commercial customers (291p). Electronics and components manufacturer and distributor Solid State is an “astute operator” and also has expertise in acquiring struggling peers and providing them with the capital and management skills they need to improve (476p).
“If a local builder fitted your kitchen, it will probably have come from Howdens Joinery.” Growth has been steady despite the uncertain economic backdrop and the group is now rolling out its winning wholesale-only model in France (616p). Power converter manufacturer XP Power has shrugged off a slump in the semiconductor market thanks to its close relationships with big blue-chip customers. Expect it to “emerge strongly from the slowdown” (2,780p).
Imperial Leather soap maker PZ Cussons is spending heavily on brands in the face of online competition, but the 4% dividend yield looks safe (198p). High-performance polymer specialist Victrex is the biggest supplier of PEEK, a “particularly rugged and light polymer” (2,374p). In a world where companies need everything from desk phones and mobiles to broadband and data, many are turning to Gamma Communications. Expect the firm to “maintain double-digit growth” as it grows its cloud product suite (1,262p).
“Iconic titles” such as Worms should mean strong cash flow this year at video-games developer Team17 Group (316p). Promotional products direct marketer 4imprint should keep growing its share of the market for “pens, bags and drinks flasks emblazoned with company logos” (3,095p). The 6.4% dividend yield makes British Gas owner Centrica a “speculative income stock” – the British Gas arm has lost customers, but the turnaround potential means that the yield is still worth considering (78.5p).
Now could be a good time to swoop on Direct Line Insurance Group – the policy count is stabilising and new technology should help it to expand margins (297p). UK royalty finance market leader Duke Royalty has “long-term predictable cash flows” and cash on hand to “pursue growth” (47p).
“Let’s be optimistic” and bet that Royal Bank of Scotland will gain from a post-election “uplift in business activity”. A profit-boosting interest-rate hike is also “not inconceivable” this year (244p). Persimmon, Britain’s second-biggest homebuilder, is a “geared bet on the property market” and consumer confidence. However, at a “bargain-basement” 9.8 times forecast earnings it looks a reasonable one (2,730p).
Safety and hazard detection group Halma is a high-quality, diversified business known for its “disciplined deal-making”. The shares are not cheap, so some may choose to wait to buy on weakness (2,153p). The Renewables Infrastructure Group, known as Trig, is an investment trust that has more than 70 solar and windfarm investments across Europe (139.25p). Jupiter Fund Management is in the middle of a turnaround and looks cheap on a yield of 5.8% (414.5p).
The Daily Telegraph
Investors in Purplebricks were burnt in 2019 after a “headlong rush” into foreign markets left it overstretched, prompting an exit from the US and Australia. “Sticking to its knitting at home” could bring happier times this year (130p).
Avon Rubber’s safety masks are the go-to choice for the free-spending US military. “In an uncertain world” this is a share to own (2,080p).
WH Smith’s cluttered high-street shops are still profitable despite “brutal” trading conditions, but its fast-growing travel division, bolstered by two “game-changing” deals in America last year, is the real reason to invest (2,624p). TI Fluid Systems makes “hi-tech car parts and fuel tanks”.
The slowing global car market is a concern, but the rise of electric vehicles – which require “additional fluid to withstand greater heat” – spells long-term opportunity (265p). GlaxoSmithKline is at the forefront of a “golden era of drug discovery” and the ongoing demerger of its consumer healthcare brands will leave it with a “practically debt-free balance sheet” (1,777p).
“Terrible PR and self-inflicted calamities” made 2019 one to forget for housebuilder Persimmon. Yet things are looking up for the housing market following Boris Johnson’s re-election and the dividend payout (the “fourth-best in the FTSE 100”) looks “almost as safe as houses” (2,730p). Commodities giant Glencore is beset by regulatory and ethical questions, but a 19% fall last year leaves it with “headroom for recovery”. The iron ore and copper outlook is weak, but a commodity mix that also includes exposure to zinc and cobalt compares favourably with peers and could bring better earnings growth (241p).
Reckitt Benckiser has served up more controversy than investors expect from a consumer goods firm over the past year, so new chief executive Laxman Narasimhan’s pledge to return to being “boringly consistent” is welcome (6,200p). Premier Inn-owner Whitbread will profit from the end of uncertainty over Brexit and is advancing into the fragmented German hotel market (4,896p).
The Sunday Times
Shares in industrial software giant AVEVA almost doubled last year, but many customers in the manufacturing, mining and oil sectors have barely started digitising their businesses, so there is more upside to come (4,722p).
BT’s shares went “through the wringer” last year owing to political uncertainty, questions over its dividend and “sports rights bidding wars”. Nevertheless, a better regulatory outlook means that it now looks underpriced – “just don’t buy it for the dividend yield” (196.25p). Shock profit warnings have dented sentiment towards online clothing retailer ASOS, yet it still managed to grow domestic sales by 15% last year. The completion of two new automated warehouses, meanwhile, will help the firm to grow its all-important overseas sales (£33.09).
The big banks have struggled to cut costs, while challenger banks such as Metro still lack the scale to compete. That means that specialists such as OneSavings Bank, which focuses on buy-to-let mortgages and small business finance, are best placed to shine this year (431p).
There is still plenty of room for new low-cost gyms in Britain, so 2020 could prove the year that Gym Group “really gets into shape”. The shares could also benefit from takeover speculation: industry consolidation could lead to a private-equity buyout (286p).
2020 is the year that the 5G rollout will really gather steam. Bet on the trend through US chip giant Qualcomm ($80.80). The government is pledging to increase the number of new houses built to 300,000 per year, which represents a big opportunity for brick-maker Forterra (345p).
CareTech, a residential care business worth £467m, is operating in a growing market attracting more government investment and insulated from shifts in the broader economy (418p). Security software developer Avast is getting better at monetising its userbase of 430 million people as the threat of cyberattacks grows (465.25p).
Investors should consider the following small companies listed on Aim. Internet domain-name registry provider CentralNic is evolving into a major player in its sector, but the current valuation fails to reflect the “full potential” of acquisitions made over the past two years (88.6p). Building-products supplier Alumasc should benefit from a pick-up in demand from new build and refurbishment during the year ahead. An attractive and well-covered forward dividend yield of 7.9% is ample reward for waiting (93.5p).
Growth in the digital music and gaming markets will provide a structural tailwind for digital payments and fraud prevention business Boku (86.5p). Specialist industrial-equipment supplier Northbridge Industrial Services is diversifying its activities away from the volatile oil and gas sector towards renewables and data centres (123p).
Advanced materials specialist Ilika has developed “thin-film miniature Stereax solid state batteries” that can be used in medical implants and “internet of things” applications. It also has a format designed for electrical vehicles. A commercial breakthrough remains some way off, but investors’ patience should pay off (27p).