Twelve stocks for 2012

I’m not really one for gambling, but on this occasion, I’ll make an exception.  Philip O’Sullivan over at has asked a few bloggers what their favourite stocks are for 2012, and that perhaps we should have a virtual wager on who’s selection does best over the year.

This sounded like a bit of fun so I’ll open it up to any readers… if you have a list for 2012 just add a comment with your list and perhaps a thought or two on why you picked them.

At this point, I’ll put on my pointy academics hat and say that over 12 months the total return of a portfolio of stocks has a huge variability and so whoever wins will of course simply be the one that was the luckiest.  Of course, this won’t prevent a show of vulgar gloating by the winner I’m sure.

Now that I have laid out my excuses and get-out clauses, I’ll quickly go over my list, of which I have two (to increase the odds that I win of course).

List 1: Quality companies at low prices

This list is basically the top-rated stocks from my list that I generate by ranking for earnings power yield, dividend yield and long-term growth.  They are typically high-quality enduring companies that are relatively cheap with a good sustainable dividend.

1. Braemar Shipping Services – industrial transport

2. Tullett Prebon – financial services

3. Royal Sun Alliance (now RSA Group) – non-life insurance

4. Robert Wiseman Dairies – food producers

5. Balfour Beatty – construction

6. ICAP – financial services

7. Aviva – life insurance

8. Atkins Group – support services

9. BAE Systems – defence

10. United Business Media (UBM) – media

11. Vodafone – mobile telecommunications

12. AstraZeneca – pharmaceuticals

List 2: Low price/book low debt companies

Although I don’t invest in these things at the moment I do still run some virtual portfolios so that I can watch them, “perhaps almost as narrowly as a man with a microscope might scrutinise the transient creatures that swarm and multiply in a drop of water” (spot the quote!).  With the test I’m currently running the holding period would be 5 years (yes, that’s FIVE years!  For various reasons but mostly to do with minimising high transaction costs (spread) associated with small caps).  The exact criteria are a secret but here’s the list anyway:

1. PV Crystalox Solar – alternative energy

2. Home Retail – general retailer

3. AGA Rangemaster – household goods

4. Communisis – support services

5. Barratt Developments – home construction

6. Beale – general retailer

7. Molins – industrial engineering

8. Centaur Media – media

9. Psion – technology hardware

10. Creston – media

11. FlyBe Group – travel and leisure

12. Future – media

May the best list win!

28/12/12 – And the results?  For list 1, the quality companies at low prices, a virtual cash portfolio of £12,000, ignoring trading costs and including dividends, is valued at £14,385 today.  That’s a gain of 19.9%.  Dividends in the year totalled £698, which is a yield of 5.8% on the starting capital.  I think that’s a pretty decent result and quite similar to what happened with the UK Value Investor model portfolio because many of the holdings were the same.

As for list 2, the low price to book and low debt companies, I have long since abandoned any interest in that approach, so you’ll have to calculate the returns yourself!  For me, a near 20% return (and near 6% yield) from high-quality companies is enough to keep me very happy.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

12 thoughts on “Twelve stocks for 2012”

  1. OK, here’s my list.

    AFF – Afferro Mining – Mining- will receive $115m for sale of stake in joint venture, which is higher than market cap, allowing investment in its remaining mines. So, get the cash at a discount, and the resources for free. I think there’s huge upside on this one.

    BLSA – Blacks Leisure – Retailers – this is a SHORT position, with a very high probability of going bankrupt

    DNO – Domino Printing Sciences – Electrical. Makes industrial printing equipment. Quality company with a long track record. ROE of 22%, which has been high throughout the last decade. PER of 13.4 and yield of 3.7%, so it’s even suitable for dividend investors. £23 in net cash. Forecast aren’t astounding, so I’m not expecting fireworks out of it. Good company, though.

    DPH – Dechra Pharmaceuticals – Pharma – makes drugs for animals. High returns on equity, reasonable debt, reasonable PER of 14.0. Revenues are growing, and in the latest IMS, revenues in US was 64% higher. GARP stock.

    MRW – Morrisons – supermarkets. PER of 12.7, acceptable debt position, and double-digit growth expected for each of the next two years. Great safety play, with plenty-enough upside.

    OPTS – Optos – healthcare. Makes eye scanners. PER 11.0, ROE 23%. Net debt looks OK. During the year, OPTS operating profits rose about 50%, and it continues to invest in a range of complementary technologies. They have expanded into several new markets. GARP play.

    So, a mixture of some potential explosive growth stories, a couple of nice safe ones, and a bet on bankruptcy.

    1. Cheers Mark. I agree with the Blacks prognosis. One way or another shareholders are likely to get wiped out.

      1. Black’s loss is our gain, huh John. JD has been completely flying over the last week. Maybe the market has gotten a wee bit overexcited about the deal, though.

        I like your choice of TLPR, BTW, although I don’t own it myself. Price to free cash flow is 6.8, net cash £48m. Best of luck with that!

        I do own VOD. Ahh, sit back, relax, enjoy. Fantastic divvie. Not huge upside, though. It should counterbalance any completely numpty choices I make this year, like why I still haven’t I sold Playtech despite my various concerns, or some dumb idea for a stock I have that I think is undervalued but isn’t.

      2. Yep, if you read some of the stuff about North Face not returning Sports Direct’s calls it looks like SD was cold-shouldered. Perhaps they felt JD was the better bet, which I think it is too.

        I’ll probably be holding JD for at least another year yet though, I’m not in any rush to sell and I think there may be plenty left in it yet.

    1. Hi Mark, thanks for the update. I’ve got to do the sums on my selection, but I’m guessing somewhere between the FTSE 100 and 250 performance. Will add them here when I do. The 250 performance is great, but it’s all noise anyway unless you can time the market. We’ll have to catch up with Philip O’Sullivan at some point to get his results, seeing as the whole 12 for 2012 thing was his idea! Merry Christmas Mr Carter.

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