We're launching our 2015 Tips of the Year at a time of considerable uncertainty and volatility in the markets. Globally, economic policies are beginning to diverge and markets have adopted a 'risk-off' (or should that be 'angst-on') stance in regard to a number of familiar big global risks that have been simmering away for some time. Our Tips of the Year for 2015 seek to both exploit this uncertainty and seek out safe havens.
For those who want to make the most of uncertain times, our Contrarian Tip of the Year offers the most potential. Currency asset manager Record (REC) has been forced to live off its low-margin currency-hedging business due to a post-credit-crunch malaise in demand for its higher-value products. But with currency volatility now on the rise, interest is picking up in Record's higher-margin range of 'dynamic' and absolute-return products. A poor record since float in 2007 and a concentrated client base means this is probably our most risky bet for 2015, but the upside could be very attractive and there is a decent 4.3 per cent dividend yield and net cash to underpin the share price.
Pace (PIC) can also be considered a risky 2015 stock pick. We've chosen the set-top box maker as our Value Tip of the Year because we feel the market is being too pessimistic about the business's prospects. While consolidation among pay-TV companies and a trend towards lower hardware spending are risks, and fears about potential disruption from internet-streaming services are not unwarranted, we are impressed by the company's attempts to move into exciting growth areas. Pace's most enticing growth opportunity is taking advantage of the trend to connect up multiple devices in the home. If the company can demonstrate that it is capable of creating growth, then its shares should offer substantial re-rating potential.
Another clear risk that our tips selection embodies is the exposure of our Overseas Tip of the Year to both the euro and the eurozone. However, the company in question, multi-utility Veolia (FR:VIE), is relatively defensive and boasts significant self-help potential. What's more, a considerable amount of gloom is already being priced into eurozone stocks and the euro itself, so decisive macroeconomic action in the region could turn what currently looks like a negative into a positive during the course of 2015.
Watch our specialists discuss their tips of the year
Geographically speaking, though, the 2015 Tips of the Year's most significant overseas exposure is probably to the US. As well as Pace's significant US exposure, our Old Reliable Tip of the Year, Hill & Smith (HILS), makes a considerable proportion of its profit there. What's more, the very favourable market dynamics for the group's US galvanising business means this looks like a prime area for expansion. The company does also have exposure to France, though. Hill & Smith is in fact not a classic 'Old Reliable' type stock, but the strong conditions in its end markets mean we think it looks a safe bet for 2015. What's more, companies that have more conventional 'defensive-growth' characteristics are currently trading at extremely high multiples relative to their historic ranges.
In the UK, property is a major theme for us this year. Housebuilder Persimmon (PSN) is throwing off cash and has a very well-stocked land bank. This means we think it can improve on its already generous plans to return capital to shareholders, which makes it our Income Tip of the Year. Meanwhile, property developer St Modwen (SMP), which also has a small joint venture with Persimmon, is set to see its net asset value (NAV) balloon over coming years as big projects come through its development pipeline. What's more, the developer's current share rating remains some way off the peaks reached in previous cycles. We've made St Modwen our Growth Tip of the Year.
Perhaps the most noteworthy theme we've avoided playing with our 2015 Tips of the Year is the weak oil price. The direction of crude over the next t12 months is a big bet to make and we don't feel inclined to take it on. Indeed, if anything we've looked to avoid the big areas of uncertainty where possible. That said, we hope we've provided a reasonably good spread of risk and geographic diversity for readers.
Good luck investing in 2015. Click the links below to access our Tips of the Year 2015.
