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Three top British stocks to buy now

Despite the gloomy backdrop, many British companies are actually doing well, says professional stock picker James Henderson. Here, he tips three British growth stocks to buy now.

Each week, a professional investors tells MoneyWeek where he'd put his money now. This week: James Henderson, fund manager, Henderson UK Equity Income Fund.

As we enter 2013, economic news flow from Europe, the US and China is likely to continue to set the pace for the rest of the world. On the domestic front, public-sector austerity measures may be painting a somewhat gloomy picture, but many UK companies and sectors are actually doing well.

Good quality industrials with strong order books are increasing their profits. The global economy is growing, albeit modestly, and well-run, competitive UK companies that are selling their goods overseas are making good returns. This has been helped by strong cost-base management, little upward pressure on wages, and stable raw-material prices. Certain firms are seeing top-line sales growth, leading to profit-margin expansion.

Large companies offer ballast to our portfolio, but what really drives performance is the smaller and medium-sized companies, in particular manufacturing businesses. There are real opportunities just now to buy companies with exciting earnings growth, in spite of the weaknesses in the broader economy.

One of the best bits of the 2012 Olympics was Danny Boyle's opening ceremony, during which he depicted iconic images of Britain's industrial revolution. For most of our working lives, the UK industrial sector has been significantly reshaped and rationalised, but the remaining companies are often world-class. One area of excellence is aerospace, and Rolls-Royce (LSE: RR) is a distinguished example.

The new generation of planes being produced makes civil aerospace an exciting place to invest in. Rolls-Royce's Trent engine is in many of the Boeing 787 Dreamliner jumbo jets and is also the engine of choice for many of the planes produced by Airbus.

Boeing's order book for the 787 stretches out to 2018, providing real visibility and support for supply-chain firms such as Meggitt and Senior, both UK engineering businesses that make a range of aerospace and industrial products. We believe earnings growth will continue to surprise.

The automotive industry, which accounts for around 10% of total UK exports, is another theme we like, particularly suppliers to car manufacturers based in the UK. The success of foreign-owned manufacturers, such as BMW, Honda, Jaguar Land Rover and Nissan, which have invested more than £6bn in production plants in the UK over the last two years, is well documented.

Research by KPMG for the Society of Motor Manufacturers and Traders indicates that vehicle production in the UK is set to grow by 9% a year to almost 2.2 million vehicles by 2016. This level of manufacturing growth will provide significant opportunities to UK companies, such as engineer GKN (LSE: GKN), that supply the vehicle manufacturers. Importantly for the suppliers we invest in, 80% of the cars built in the UK are exported, to more than 150 countries, providing diversification across markets.

While the economy remains a challenge for retailers, car maintenance and cycling specialist Halfords (LSE: HFD) is well positioned in its market. Victoria Pendleton may not have fared so well on the BBC Strictly Come Dancing show, but her range of bikes, on sale at Halfords, alongside those designed by fellow Olympic gold medallist Chris Boardman, should continue to see buoyant demand after last summer's Tour de France and Olympic cycling success.

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