I’m not really one for gambling, but on this occasion I’ll make an exception. Philip O’Sullivan over at http://pdosullivan.wordpress.com 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 is 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.