Nick Raynor and Graham Spooner, investment advisers at The Share Centre have come up with their 6 favourite companies for 2011.
First, a quick review of last year’s tips:
Chloride +97 pct - The company, as we suggested it might, was taken over
Compass Group +27.5 pct – 2.5% yield
Marstons +26 pct – 5% yield
ITV +26 pct
Churchill Mining +14 pct
National Grid +3 pct – 5% yield
Share Tips for 2011
Centrica - Lower risk
The largest supplier of gas in the UK should again be boosted by another cold winter and the 7 pct increase in price for its gas. The group have been increasing their own volume of gas production, along with buying gas assets in Canada, as well as developing its services operations. They have also taken a 20 pct stake in the new holding company for British Energy.Demand for natural gas could come in a number of forms but the one significant reason raising debate in the UK over the next decade will be the replacement of nuclear power stations as the current ones are coming to the end of their useful lives. Gas could be seen as one of the alternatives to supply the energy needed to fire power stations, should the rebuilding of nuclear power stations be delayed.
The reasonable yield of 3.7 pct yield, improving performance, along with its position in the UK energy market helps makes Centrica our preferred lower risk share for 2011.
Rio Tinto - Medium risk
Rio Tinto is one of the world’s largest mining groups, being especially active in North America and Australia. Key commodities are Iron Ore, Copper and Coal. Around half of its earnings come from Iron Ore where its production has hit record levels and prices have remained high. The strong cash flow continues to eat into its debt level. Recent news includes investment in a copper project in Mongolia and a £2.5 billion bid for Australian coal group Riversdale.
These are exciting times for miners with high prices for commodities on the back of strong demand from China. The attractions for investors who want exposure to a volatile sector are good earnings momentum and the improving balance sheet. There are also hopes that the proposed Australia mining super tax will be watered down.
Prudential – Medium risk
The UK’s largest life assurance company stated in an investor presentation in December that it expects to double profits from Asia over the next three years. This followed on from a 25 pct rise in third quarter profits in that region to £353 million.
Recent updates have helped restore confidence in Prudential after its failed bid for AIG in 2010. Final results due in February will hopefully rubber stamp this trend. The new and demanding growth targets that management are targeting, if achieved, should reward long term investors wishing to have exposure to the Asia growth story.
Enquest – Medium risk
Oil and gas production and development group that was spun off from Petrofac last year, with assets in the North Sea. Guidance for this year is for 20,000 barrels of oil per day. Enquest aim to exploit lower risk opportunities based on proven areas of oil reserves. They trade on an estimated forward p/e of 12.
The oil price continues to move higher and we are keen to have exposure to the sector through one of the medium size groups that are geared to this rise. Enquest are confident that their assets offer solid organic growth opportunities in a production biased portfolio. Last year the sector was subject to M&A activity, which could continue in 2011.
Booker Group – Higher risk
The UK cash and carry group, Booker, reported interim results that were better than expected with a 24 pct rise in profits to £36.9 million, helped by rising online sales, expansion into the catering market and demand for fresh meat and vegetables. The dividend was raised by 12.5 pct to 0.27 pence. Two more stores in India will be opened in the first half of this year. The highly regarded management team have turned the fortunes of the company round, resulting in a steady increase in customer numbers and a stronger balance sheet. They are now setting their sights on expansion into India, hence the higher risk. Although the shares have performed well since October, we feel there could be further gains.
Dominion Petroleum – Higher risk
This oil and gas exploration company could be set for a tremendous 2011. Drilling is due to take place at its Alpha prospect later this year and an independent audit has already said that the prospect could be worth up to 1.1 billion barrels of oil and 7 trillion cubic feet of gas.
It has not been all plain sailing as investors should know, recently one of the company’s interests in a well was deemed worthless, as the well found no oil or gas. This highlights the risk with these types of companies but the rewards could also be huge. Dominion Petroleum is AIM listed and is therefore ineligible for an ISA.
Please read our investment research policy to understand how the Advice team arrive at our view.