Tips of the year 2012 review

Add in the effect of dividends and the outperformance was even more marked, providing a total return of 19 per cent. That's because there were some useful high-yielders in the bunch. Not just Smiths News, where the yield was 11.5 per cent on our tip price, but also Beazley, Hammerson, even James Halstead and AZ Electronic. That wasn't coincidence. We reckoned that dividend income would be highly prized in 2012's environment of ultra-low interest rates - rightly, as it turned out. Naturally, it's tempting to imagine what might have been. That's another way of saying we wish we hadn't tipped shares in waste-to-energy company PowerHouse Energy. We are quite happy to imagine ourselves so clever to have spotted the potential in Smiths News. So we also have to acknowledge the failures that led us to PowerHouse.

That's the only stock of the eight that now has a 'sell' tag. For three others - Hammerson, James Halstead and Smiths News - the shares now look too dear to buy. Yet those who bought at around our tip price should stick with them - and, in the case of Halstead and BG (the other obvious failure) - quite possibly for years to come.

Here's what we think of the eight now.

TAKEOVER TIP OF THE YEAR

■ AZ Electronics (AZEM)

AZ Electronics has a huge portfolio of clever chemicals that the likes of LG, Toshiba, Samsung and Apple use to make their smartphones and TVs work. The chemicals are hard to replicate too, so we thought it wouldn't be long before one of the multinationals snapped up AZ. They haven't yet, but the City is waking up to the company's potential.

A stock overhang cleared when former private equity owners Carlyle and Vestar sold out in the spring, and a strong second half looked odds-on when management called the bottom of the semiconductor market soon after. Demand for smartphones, tablet devices and laptops is staying strong, particularly in emerging markets, and new high-margin products are selling well. That's still not fully reflected in the share rating of 14 times forecast earnings. Still a buy.

CYCLICAL STOCK OF THE YEAR

■ Beazley (BEZ)

The long list of catastrophes in 2011 is still helping insurers raise their premiums and rebuild their reserves, which is chiefly why 2012 was a good year for Beazley. The share price is well up on our buy tip. True, management estimates that the company will suffer a $90m (£56m) hit from Hurricane Sandy. Beyond that, 2012 was largely free of big loss-inducing events. Beazley expects its 'combined ratio' (of claims to premiums) for 2012 to be in the low 90 per cent range - signalling solid underwriting profits. Based on estimates from broker Numis Securities, the forecast dividend will yield 4.8 per cent too - not the best in the sector, but not bad. The shares also trade at under 1.3 times Numis's forecast for end 2012 net tangible assets (NTA), which isn't expensive for an underwriter. Shares in Amlin, for example, trade on nearly 1.4 times forecast NTA and the company looks more exposed to Sandy-related losses. With catastrophe rates still firming, we're sticking with our advice to buy.

GROWTH STOCK OF THE YEAR

■ BG (BG.)

Shares in BG hit a 21-month high of 1,547p midway through March, but trailed off subsequently due to falling US gas prices. Then the oil & gas group was forced to book a $1.3bn (£823m) write-down on its interests in US shale gas, although other segments continued to perform well, most notably its liquid natural gas business in Asia. However, BG's share price tumbled to around its current level after a third-quarter update said that expected output in 2013 would only be broadly in line with 2012. Production is being held back by scheduling problems at its Sapinhoa and Lula NE wells in offshore Brazil, deferrals linked to the Elgin/Franklyn shutdown in the North Sea and a reduction in the US rig count due to the falling price of US gas. However, BG's long-term merits mean that the shares remain a buy.

VALUE STOCK OF THE YEAR

■ Hammerson (HSMO)

Hammerson's superb performance had nothing to do with its property portfolio, which was marked down 0.1 per cent during the first half. Instead, it reflects value, balance-sheet improvements and - arguably - the controversial decision to reposition the business as a pure-play mall owner. We focused on the value argument in our tip of the year. Hammerson traded at a 31 per cent discount to book value a year ago, which seemed way too pessimistic. The discount has since narrowed to 10 per cent. Meanwhile, there has been one piece of good news - in September the group launched a €500m (£400m) seven-year bond with a coupon of just 2.75 per cent, showing it has excellent access to the capital markets. The sale of its London office portfolio may hurt performance in the short term. We downgraded our advice to hold at 453p in September and stick with that.

IC Tips of the Year over the years (% change)

OLD RELIABLE STOCK OF THE YEAR

■ James Halstead (JHD)

'Old reliable' by name - and by nature. The flooring specialist continues to deliver rising profits and growing dividends. In the year to end June, pre-tax profits rose 11 per cent and earnings by 12 per cent - thanks in particular to growing business on the continent - and meanwhile the dividend was increased for the 36th consecutive year. Following the 2011-12 results - with the share price at 634p and the rating at 20 times forecast earnings - we decided that the shares were no longer a buy. That said, we still like the company for its excellent management and ability to generate higher profits from its wide geographical base. The shares now trade on 19 times forecast EPS, which still looks toppish. But we would suggest buying them on a significant dip. Hold.

BLUE-SKY STOCK OF THE YEAR

■ PowerHouse Energy (PHE)

After a bright start, the skies darkened rapidly on our blue-sky tip. PowerHouse's failure to raise the required funds to buy out the remaining 70 per cent of its waste-to-energy technology Pyromex shattered shareholders' confidence and led to the shares being suspended for six months between April and October. They are now trading again and the price has slumped. Clearly it is a worry that the company has announced no information about the progress of Pyromex, which is supposed to be a super-efficient incinerator that can extract energy from the most unlikely sources (old tyres or hospital waste, for example). The company is currently being funded by loans from Peter Bond, the founder of Linc Energy, which is a significant shareholder, but it has yet to announce credible plans. We rate the shares a sell.

INTERNATIONAL TIP OF THE YEAR

■ Procter & Gamble (PG)

It was a difficult year for US consumer products giant Procter & Gamble. In February it announced swingeing cost cuts to help it compete aggressively with European rivals. So far the restructuring plan is said to be ahead of schedule. But in June Procter lowered its earnings guidance and that hit the share price. Results since then have been better than expected, but the company faces investor pressure to turn its performance around, not least from activist hedge funds who have built a 4 per cent holding in the past six months. And for UK investors all of the share price gain has been wiped out by sterling's strength against the dollar. However, Procter has powerful brands and, as it focuses on consolidating its position in larger developing countries, the share price should progress. Buy.

INCOME STOCK OF THE YEAR

■ Smiths News (NWS)

Buying the shares at 78p was all about the stonking 9p dividend. The market didn't believe that Smiths could keep the payout going; we disagreed. Throughout the year the cash kept coming in, revenue was made secure with multi-year contracts from major customers and results beat expectations. Smiths even looked to move back to growth with the acquisition of The Consortium Group. As fears over the shrinking print market gave way to cautious optimism the share price doubled. The shares now trade on a much more sane PE ratio of 8 times, and the dividend yield has been whittled down to 5.8 per cent. For a low-growth yet stable business, that looks about right, so we rate the shares a hold.

Tips of the Year 2012