Stock picks for 2007 - The Shares and funds to invest in for growth during 2007
Companies / Investing Jan 02, 2007 - 12:21 AMBy: Nadeem_Walayat
The theme for 2007 is to diversify into high growth economies, which includes both emerging and developed economies. The UK and USA are expected to slow during 2007 and better growth is likely to be found outside these countries, as was the case for much of 2006.
These are our stock picks for 2007 and beyond, the aim being to provide long-term sustainable growth rather than short-term speculative holdings, and as always do your own research before entering into any investment decisions. Also, we intend on focusing more on managed investment trusts rather than individual stocks so as to reduce the risk and this further enhance the long-term aspect of our selections.
Also see our special forecasts for 2007, for potential adjustments to entry timings - Dow Jones Stock Market forecast for 2007 , FTSE 100 Index stock market forecast for 2007 , and Emerging Markets outlook for 2007 - India, China, Russia, Eastern Europe and Brazil
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Royal Dutch Shell (Oil Company) - Has had a bruising 2006, that despite the surge in oil prices, ends the year near the lows. The problems have been covered in several articles during the year and relate to the Russians putting their foot down on the controlling interest in the Sakhalin 2 mega oil & gas project. As well as continuing unrest in Nigeria, where Shell holds a third of its reserves. That's the bad news, now for the good news. The recent deal with gazprom looks set to have 'mostly' solved the russian problem. |
I say mostly because you never know what next will come out of the Kremlin ! Other hidden bits of gems concerning Shell are the major holdings of Oil Sand deposits in both Canada and Australia, which reflect long term programme's that given the expected up trend in oil prices will feed through in revenue growth in the coming years.
Now Shell is a big company with a market cap of x, so growth cannot be spectacular, its no Cairn energy ! But with Shell trading on a PE of just 9.7 and a dividend yield of 3.5%, Shell is still a good long-term investment for steady growth and dividends. Even if there will be a year like 2006 when the stock price fails to perform it could see a recovery during 2007, especially if oil prices manage to hold above $60 and trend higher towards $70. A good long-term investment, with prospects of a good 2007.
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Google (Tek Stock) - If you followed our last article on google of 26th November 06 - Google passes $500, Is it time to sell ? , calling for a fall in google share price, this has happened to a degree,. with google at 456. The stock still is not cheap on current earnings, and may fall further to and below $400, which represents about 11% on the share pr ice.. But on an long-term investment basis, a drop of 11%, given potential for more than 100% gains over the coming years is something that can be considered in investment terms. |
A strategy into Google could be via a managed fund, of which there many or to scale into the Google stock over a several months, say buy a 3rd now, a 3rd in a months time and so on. Google is the search engine market leader, and given forward earnings growth of about 30% could continue growing for several more years to eventually above $1000.
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British Empire Securities and General Investment Trust (BTEM) (Global Fund) - This a personal favorite, having benefited from consistent, steady growth over several years. The investment objective is to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value. Current top 5 holdings are - Investor AB 3.44% , Alliance Trust 3.16% , Jardine Strategic 2.63% , Tokyu Corporation 2.37% , Sofina 2.32%. |
Emerging Markets - Our article on the Emerging Markets concluded that most emerging markets represent good long term investments well beyond 2007, even if there may be volatility early 2007. The funds available are numerous so I am concentrating on just one per country, that has outperformed their respective country sectors.
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India - JP Morgan Indian Investment Trust, (LSE - JII), Has consistently performed better than the sector average. Though the indian stock market is expected to be especially volatile during 2007. But a long-term holding in this or similar stock should provide solid growth as part of any portfolio. The trust has a market cap of some $650 millions. Its top 5 holdings are INFOSYS TECHNOLOGIES 8.1 , BHARAT HEAVY ELECTRICALS 6.9 , BHARTI AIRTEL 5.9 , LARSEN & TOUBRO 5.7 and ASSOCIATED CEMENT 5.6 - So a spread across a majority of the sectors and thus a good exposure to India. |
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China - Sticking with JP Morgan we opt for JP Morgan Chinese Investment Trust (JMC) as the way into China. This is a small fund with a market cap of about $150 millions and does pay a small dividend. The top of 5 holdings are - Taiwan Semiconductor 6.4 , China Mobile 6.2 , Hon Hai Precision 4.4 , JF China Pioneer 'A' share Fund 4.3 , Cheung Kong 3.4 so has more of a Tek focus, if you prefer other plays such as construction then you should look at alternative funds - Please see the artcle Five ways to invest in China for 2007 - Exchange traded funds (ETF's), Mutual funds, Chinease companies.. |
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Eastern Europe & Russia - Jupiter Emerging European Fund, which mainly invests in Russia as well as large stakes in newly joined state
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Thailand- Has taken a battering of late, and may just present a good long-term entry play. Expect volatility, but a good investment trust that comes to mind for exposure to Thailand is the ABERDEEN NEW THAI INV TRUST.(ANW) |
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Metals & Mining - The sector is expected to continue to trend higher after consolidation during the year. Rather than individual stocks, again we look to mutual funds / investment unit / trusts. The one we favour above others, that is Merrill Lynch World Mining Investment Trust. If your looking for exposure to individual stocks, then going for the sector leader BHP Billington should guard against volatility during the year. It may not be best performer, but its also expected weather any volatility better than others. |
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Canada - Canadian General (CGI) - Given abundance resources, and plenty of growth space, Canada represents a future growth story for many decades. CGI seeks long-term capital and income growth from investment in Canada. CGI traditionally pays quarterly dividends and capital gains dividends before each year end. The shares currently are standing at a large discount of 14% to their net asset value. The top 5 holdings are - Falconbridge Limited, Cameco Corporation, TSX Group Inc, Rogers Communications Inc. |
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Japan - Baillie Gif Shin Investment Trust- Gives exposure to Japan, the reason for picking this fund is for technical reasons, the price chart fell heavily from a peak of 303 in Jan 06 to a low of 180, with current price at 196. The potential for recovery in trend for this fund is therefore high. |
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Australia - Australia is a very similar growth story to Canada, has comparable size and resources, and having resource sector plays already introduces some element of Australian exposure to portfolios. But a more direct exposure is possible with a UK based investment trust Eclectic Investment Trust (ECIT) - which invests in a range of Australian and New Zealand investment trusts. Its top holding 53% is Trust Company of Australia |
All of the above picks for 2007 are listed in the table below and weighted in terms of exposure :
| Stock / Fund Pick | Last Price Dec 06 |
Weighting |
| Royal Dutch Shell | £17.80 |
8% |
$ 459 |
8% | |
| British Empire Securities and General Investment Trust | £4.45 |
15% |
| JP Morgan Indian Investment Trust | £3.05 |
14% |
| JP Morgan Chinese Investment Trust | £0.94 |
10% |
| Jupiter Emerging European Fund | £2.23 |
11% |
| ABERDEEN NEW THAI INV TRUST | £1.56 |
3% |
| Meyrril Lynch World Mining Investment Trust | £4.42 |
7% |
| BHP Billington | $ 39 |
3% |
| Baillie Gif Shin Investment Trust | £1.95 |
5% |
| Canadian General CGI | £12.20 |
8% |
| Eclectic Investment Trust | £1.58 |
8% |
| 100% |
Many of the above investment picks will be incorporated into the model Stocks Portfolio, as well as coverage of the performance of stock picks during 2006 (to follow shortly).
by Nadeem Walayat
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Disclaimer - This Analysis is provided for general information purposes only and not a solicitation or recommendation to enter into any market position, and you are reminded to seek independent professional advice before entering into any investments or trading positions.
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