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Isa ideas: 21-30: Our 10 favourite tips for your Isa

Ten more shares to consider for your Isa
March 2, 2012

Five 'growth' stocks, three 'value' stocks and two 'speculative' situations; activities that range from making skins for sausages to underwriting major insurance risks and operating mobile phone services across the globe; all range of sizes, from the third biggest company on the London market by value of its equity to the 536th biggest; and from the highly cyclical to the stubbornly non-cyclical. Yet what the stocks on these pages have in common is that they are all eligible for holding in Isa accounts and that their underlying companies are high quality. At current prices, we reckon they are just about the 10 favourites from all of our outstanding buy tips. And, by a happy coincidence, put together they make a nicely diversified little portfolio.

21. Chemicals

AZ Electronic Materials (AZEM)

Price: 288p

The factors that made AZ our takeover tip of the year for 2012 remain intact. AZ, which supplies 'clever' chemicals to the electronics industry, has a big exposure to the fast-growing economies of Asia and to some of that continent's world-beating companies, including Samsung, Toshiba and LG. It also helps the takeover case that there are signs that the highly cyclical microchip industry has bottomed out and that there are old-world chemicals companies with sound finances that are forced to grow via acquisition. True, predators may be slightly deterred by the sharp rise in AZ's share price this year - up 16 per cent on our 6 January tip - but long-term investors can still be confident of getting good returns buying at about 13 times forecast underlying earnings for 2012. For details of AZ's 2011 results click here.

22. Non-life insurance

Beazley (BEZ)

Price: 148p

Beazley is all about cyclicality; in particular, the insurance cycle - that familiar phenomenon where insurers compete aggressively on price until along comes a catastrophe or two to wipe out their reserves. That's a cue for them to price their products properly, make fat profits and rebuild reserves until the circus starts all over again. Fresh from catastrophes aplenty in 2011, the industry is in rebuilding mode and Beazley should benefit hugely because - despite exposure to the lines of business that get caught in catastrophes (reinsurance and property) - it was not hit as hard as some. So it can capture all of the upswing without needing to recover too much; in the second half of 2011 it was back to making underwriting profits. That makes its shares especially attractive among insurance stocks, particularly as they trade in line with net asset value and offer a 6 per cent-plus yield.

23. Chemicals

Croda International (CRDA)

Price: 2,157p

They call it the 'lipstick effect'. As the baby boomers of the developed world turn into wrinklies, they are determined to grow old as beautifully as possible, and use lots of cosmetics as a result. Speciality chemicals group Croda is a prime beneficiary of this phenomena, as a supplier of raw materials for everything from make-up to shower gel, and moisturisers to omega-3 oils. Croda maintained its habit of producing nice surprises when it announced its results for 2011 last month – profits were up 26 per cent and earnings up 29 per cent – but as it marches into the developing world growth should continue strongly. True, the share price has motored ahead since our tip in December. But think of that as the momentum that may well carry the price higher. And there shouldn't be too much downside - Croda is always talked about as a takeover target for the likes of Brenntag of Germany or Air Liquide of France.

24. Food producers

Devro (DVO)

Price: 300p

Okay, you don't want to think too much about what Devro does. But being the world's leading supplier of edible collagen casings for sausages and hams is a marvellous niche to occupy - even if Devro does get much of its raw material as bits of animal skin that leather makers don't want. Results for 2011 were typical of the past few years - demand, especially from emerging markets, has justified heavy investment in new capacity, which is producing a virtuous circle of higher volumes and lower unit costs. Sure, the share price is up 121 per cent on our buy tip of two years ago. But demand for sausages cased in collagen, as opposed to expensive and difficult-to-use natural gut, are likely to grow for as long as folk in emerging markets want to chomp their way through a more affluent diet.

25. General retailers

Dignity (DTY)

Price: 798p

We can't put it much better than the sentence that opened our tip to buy Dignity's shares last March: "There is a wonderful certainty about the business of Dignity, which should appeal to Isa investors wanting to lock away capital for the long term." And it would be remarkable if its results for 2011, due next week, say anything to change that view. After all, when you are the UK's second biggest funerals operator with 567 outlets and 11.5 per cent of the market, there is a reliability about results. Assuming its bosses don't do anything stupid – and they have shown no sign of doing so – the business will trundle on. Sure, little changes in the UK's death rate can cause profits to wobble, but nothing more. And, as Dignity progresses at its measured pace, it should continue to generate the cash that, from time to time, will permit the occasional re-financing and chunky distribution of capital to shareholders. If only all growth stocks were so predictable.

26. Leisure goods

Games Workshop (GAW)

Price: 538p

Either you get fantasy role-playing games - all Dark Eldar armies or Space Marines - or you don't. However, what's easier to grasp is that the people - nearly always men - who like to roll the dice and play war games with little models are addicts. And that makes for a strong business franchise. Customers keep coming back through the macroeconomic bad times as well as good. True, it's a niche that hasn't been without its problems for Games Workshop, but the company's management has sorted out the operations in North America and has streamlined the staffing arrangements at its hobby centres (ie, shops). In addition, Games Workshop has a nice habit of distributing surplus cash to shareholders, which, for example, meant a 29p half-year dividend paid last month. Yet, even without one-off payments like that, there is a nice fat yield on offer (see table, below).

27. Financial services

IG Group (IGG)

Price: 468p

Think of shares in spread-betting operation IG Group as insurance against a benign economic recovery in the world's developed economies. True, stock markets - though not their underlying economies - have a benign look about them currently, but no one seriously thinks the world will get through 2012 crisis-free. In which case, the volatility that hits financial markets during such episodes benefits IG. And, more than ever, the company is equipped to cope with surging demand. In last summer's helter-skelter IG was processing 270 orders per second, and now it can deal via all of the UK's mobile-phone networks - the route through which a sixth of its orders now arrive. Meanwhile, revenues in Europe and Australia are growing fast and Japan is stabilising. All this, plus shares that come with a 4.7 per cent yield - insurance indeed.

28. Travel & leisure

Ladbrokes (LAD)

Price: 154p

We labelled shares in the UK's best-known name in gambling a growth stock when we suggested buying them in July, but we could just as easily have labelled them as 'speculative'. That's because the big challenge facing Ladbrokes is increasing its online presence. At last there are some encouraging signs, as heavy marketing significantly boosted the number of actives players on its online sports book. The next step must be to do a similar job with its online casinos. Meanwhile, the group is underpinned by a bricks-and-mortar business that won't excite, but which is free from the regulatory concerns that dog the online betting business. And that combination of solidity plus the risk of the online challenge comes in a share wrapper that offers a 5.1 per cent yield on 2012's likely payout.

29. Financial services

Paragon Group of Companies (PAG)

Price: 187p

True, Paragon is exposed to some of the nightmares that still spook investors - housing finance, house prices and the wholesale money markets. But that has not prevented it recovering strongly from the worst of the credit crunch, partly because - paradoxically - a shortage of mortgage finance plays straight into its hands as a finance provider to the UK's buy-to-let landlords. So Paragon sees plenty of demand for new mortgages, while lubrication of the wholesale markets means that late last year Paragon completed its first securitisation of bundled mortgages since July 2007.

Meanwhile, Paragon's financial strength means it can pick up bundles of loans on the cheap from distressed lenders, while arrears on its own loans continue to fall. Yet, despite all this, its shares trade at 25 per cent below their underlying book value. That makes Paragon one of London's best value stocks.

30. Mobile telecoms

Vodafone (VOD)

Price: 173p

"Patient investors should just think about that remorseless growth in dividends, then buy the shares and forget about them." That's how we explained the basic logic for buying Vodafone's shares in July and we can't put it better now. All an investor has to do is focus on the 5.5 per cent dividend yield being captured at the current price and accept that the payout will grow by about 3 per cent a year over the long term (and considerably faster in the short term). In the long run that's as likely to produce acceptable returns as anything that equity investment can offer. Meanwhile, it helps that, operationally, Vodafone looks better than it has for many years: it's no longer squabbling with its US partner, Verizon, and the flotation of a chunk of its fast-growing operation in India is likely this year.

10 favourites for your Isa

CompanyCodeSectorPrice (p)MKt Cap (£m)PE ratioYield (%)Tip styleDate tipped
AZ ElectronicAZEMChemicals2881,103134.5Speculative06/01/2012
BeazleyBEZNon-life insurance14877885.6Speculative06/01/2012
Croda InternationalCRDAChemicals2,1572,862172.9Growth16/12/2011
DevroDVOFood producers300470142.8Growth21/11/2009
DignityDTYGeneral retailers798430132Growth18/03/2011
Games WorkshopGAWLeisure goods538139137.4Value27/08/2010
IG GroupIGGFinancial services4681,699124.7Growth09/09/2011
LadbrokesLADTravel & leisure1541,395105.1Growth01/07/2011
Paragon Group of CosPAGFinancial services18755792.4Value26/08/2011
VodafoneVODMobile telecoms17388,799107.4Value29/07/2011