Stock markets: the Guardian’s tips for 2016
A year that saw leading shares hit new peaks, only to fall to three-year lows mere months later, was always going to be difficult for investors.
Supported by central bank stimulus measures and hopes of a quick end to the Greek crisis, the FTSE 100 hit a record close of 7,103.98 in April. Even then, however, there were concerns about slowing demand from China, the world’s second largest economy, which put metal and oil prices under pressure.
Those fears only grew as the year progressed, and when China unveiled a surprise devaluation of the yuan in August, commodities suffered a real rout and oil slumped to near 11-year lows.
Despite all that, the US Federal Reserve came round to the view that it would soon be time to raise interest rates for the first time in nearly a decade, in the belief the US economy was strong enough to handle dearer borrowing costs despite problems elsewhere in the global economy.
Traders inevitably headed for cover at the prospect of a rate rise, and markets suffered a dreadful December. There was a mini-rally in the run-up to Christmas as the Fed did indeed make its move on rates, which at least relieved the uncertainty, and there was hope of further stimulus measures from China.
By the end of the year the FTSE 100 had recorded an annual fall of 4.9% to 6,242, so it was no surprise that our share tips for 2015 ended in negative territory, although a 5.1% collective loss from our tipsters was worse than the overall market.
There were some notable gainers, however, with International Airlines Group, which owns British Airways, soaring more than 25%, helped by lower fuel costs and a strong trading performance. Aviva also did well, as insurance proved a stable sector.
Unfortunately there were also a couple of very poor performers. AO World lost 44%, hit by a profit warning in February from which it struggled to recover.
My own tip, Software Radio Technology, dropped 21.4% after delays in receiving revenues from some of its newly won contracts, although it said it was confident on the outlook.
As a reminder, the 12-month period we use for these tips is an arbitrary timeframe for tracking shares. In the real world, investors would be likely to cash in any gains or cut their losses at different times of the year, rather than wait until 31 December.
With that in mind, on to this year’s choices. A number of them are backing the UK consumer to keep spending, despite the prospect of an interest rate rise from the Bank of England sometime in 2016.
The dining out market is expected to continue growing, with consumers still feeling the benefits of relatively cheap borrowing and low inflation. Restaurant Group, whose brands include Chiquito, Garfunkel’s and Frankie & Benny’s, is likely to be one beneficiary. Its outlets are in retail and leisure parks, which insulates it from competition on the high street, according to the broker Panmure Gordon, and also gives it accesses to customers seeking meals before or after a visit to the cinema.
Analysts think it is good at spotting suitable properties for new restaurants, which is just as well given its ambition to double its 495 outlets within 10 years. Some believe it could profitably add a fast casual brand, where food is priced more cheaply and customer turnover is higher, to its existing outlets. Despite the possible negative impact of the “national living wage”, the shares – now 685p – could have further to go.
WPP’s chief executive, Sir Martin Sorrell, has many fans in the City. Watchers of the advertising sector love to tip his firm’s shares and many continue to do so. They reckon the company will continue to buy back stock, while its investment in digital should continue to pay off.
In fact, of the 31 analysts following the stock, according to the financial website Digital Look, 22 are bullish and nine are neutral after the shares added around 16% to £15.63 in 2015. Such a positive consensus among City analysts is often a sell sign, but we’ll risk it and join the Sorrell love-in.
Shares in Cambria Automobiles, the motor dealership, have been climbing steadily of late and currently stand at an all-time high of 80p, up 70% over the 2015. There is reason to think they have much further to go. Annual profits came in 43% ahead of the previous year and above expectations at £7.7m.
Such is the momentum in the business that Zeus Capital, the group’s joint brokers, are upping their earnings forecasts for 2016 and 2017 by 4%. The dealership is favoured by Aston Martin and Land Rover, and the group has a history of buying underperforming dealerships and turning them around.
Every dog has its day, and FirstGroup has been a real dog. Not least since the Aberdeen-based business bought Greyhound, the US coach business, in 2007. First’s share price has hovered around the £1 level for the last two years, but a 2013 rights issue is starting to fade in the memory, the erudite Tim O’Toole is still in post as chief executive, and the group has even won the TransPennine rail franchise – although it is nowhere near as lucrative as the ones that slipped away.
No one should bank their life savings on FirstGroup, but with IAG – last year’s golden tip – now priced in for success, this oversized bus company can surely chug its share price of 107p further uphill.
Transport infrastructure is one of George Osborne’s biggest obsessions, led by the HS2 rail project. This is good news for the UK engineering sector. WS Atkins, which has been attracting attention with its award-winning work on the design of Birmingham New Street station, is one of the firms that should be brought in early to draw up plans for new rail, road and school schemes.
Atkins, which reported a 40% increase in half-year profits last month, pays decent dividends, but it has recently beefed up its nuclear division which may put some off its shares, which stand at £16.26.
It is probably foolish to back a company whose shares have almost doubled in the last year, but take a look at SuperGroup, the owner of the trendy Superdry brand. Amid frantic price slashing by fashion retailers, the firm’s chief executive, Euan Sutherland, said on 16 December that it was selling almost all of its stock at full price.
That appears to bode well for what will be another tough year on the high street. SuperGroup, which closed the year at £16.46, also has growth options in the US, China and Germany. None of those markets are easy, but Sutherland, a seasoned retailer who joined in November 2014, seems to have the necessary grip on the business.