10 shares for your Isa

Emulating the performance this year might be tough after last year's stellar run, especially with markets close to five-year highs and valuations starting to look a little stretched. But when it comes to picking stocks and shares for your Isa, it's worth paying for quality - this year's selections come with an average forecast PE ratio of 16, but they're all leaders in their respective fields and, as a result, are well protected from the economic concerns that continue to loom large. An average trailing dividend yield of 2.7 per cent isn’t to be scoffed at either in the current low interest rate environment, and doesn’t take into account hefty cash returns to come from several of our portfolio constituents.

39. Berkeley (BKG)

Household Goods

Price: 1,905p

Berkeley Group (BKG) is not your average housebuilder; it specialises in building apartments in and around the centre of London, undoubtedly the area least affected by the current economic malaise. That's why the shares command the biggest premium over net asset value of all the housebuilders. However, it also has an impressive land bank worth around £2.8bn - that's more than the group's market value.

Strong cash flow means that net debt has been all but eliminated. It also means that Berkeley has a lot of cash on the balance sheet, and a chunk of this is coming back to shareholders. In fact, Berkeley is going to pay out £13 a share in dividends by September 2021, which works out at 144p a year for the next nine years, or a yield of around 7.7 per cent. And with little sign of housing supply matching demand for the foreseeable future, owning shares in Berkeley should turn out to be a nice little Isa earner.

40. Invensys (ISYS)

Software & Computer Services

Price: 365p

Speculation that Invensys (ISYS) is about to be taken over has occupied its fair share of column inches over the past decade, yet a sizeable pension fund deficit has always proved a stumbling block. Now, the accident-prone conglomerate has agreed to sell its rail signalling division to Siemens for an incredible £1.7bn. The deal could complete as early as next month (April) and the company looks highly vulnerable to a bid for what's left.

Offloading the slow-growing rail unit not only solves the pension problem, but also leaves Invensys with £548m of net cash, even after returning 76.7p per share in cash to shareholders. The remaining business will focus on supplying industrial software and control equipment to power stations, factories and oil refineries. That's the sexy, high-margin operation - IOM - which should interest rivals. Emerson Electric approached management last summer and Invensys admitted others were also interested - think Honeywell, Switzerland's ABB, General Electric, or private equity. Siemens may want a look, too. Applying the same multiples paid for rail to IOM values Invensys at well over 500p a share.

41. Unilever (ULVR)

Food Producers

Price: 2,638p

Unilever's (ULVR) shares might not be cheap on a forecast PE ratio of nearly 18, but the global food, home and personal care giant is, in fact, attractively priced compared with its peers - and after steady share price gains last year there's more upside to come as it takes advantage of its leading positions in emerging markets, which account for 55 per cent of total turnover, higher than its industry peers. That's enabled it to push through price increases without impacting volumes too much.

The group is also skewing itself towards personal and home care, while slimming down its food division, which has been a major drag on growth. Shedding smaller brands that have no possibility for global expansion and investing instead in product innovation, core brands and higher-margin business, is also a solid long-term strategy. At the same time, a focus on cost control and pricing discipline has enabled Unilever to cut net debt and the company could potentially have net cash in two years, which could mean tastier dividends for your Isa.

42. N Brown (BWNG)

General Retailers

Price: 405p

N Brown (BWNG) has been one of our most successful long-standing buy tips in the often troublesome general retail sector, with the shares up 58 per cent in the past year alone. But there's a good reason to think they could move higher still - especially after extra investment in marketing saw bumper like-for-like sales growth of 8 per cent over its Christmas quarter.

While many retailers are cutting store space and finding it difficult to tackle multi-channel retailing, N Brown started out as a home shopping company - so like more mainstream rival Next, that's given it a head start in building a successful online proposition, which now makes up more than half of sales. Now, it's even opening a small number of UK high-street stores to attract new customers and increase awareness of its brand.

So far, the trials have proved successful, and a decision on further rollout could come soon. Analysts believe this could add as much as 5 per cent to sales directly over the next two years. Management is also continuing overseas investment, with a particular eye on the $35bn plus-sized US womenswear market, and it’s likely that newly appointed chief executive Angela Spindler could move more aggressively to capture this prize - that could prompt a further upward re-rating of the shares.

43. WS Atkins (ATK)

Support services

Price: 891p

We tipped engineering consultancy WS Atkins (ATK) in November because of a solid dividend track record and signs of resilient trading in the core UK business, with the kicker of possible growth overseas, and it is for these same reasons that the shares remain a good addition to any Isa portfolio.

WS Atkins' shares are trading on a forecast PE ratio of 11 times which is cheap compared with the wider support services sector on 13 times. There is a reason: it has a cloud hanging over it due to payment delays relating to airport construction in the Middle East, which is responsible for 10 per cent of revenues. However, if these are resolved favourably in the coming months - and there is a good chance Atkins won't be hit quite as hard as the current lowly rating implies - the shares will be re-rated higher.

More comforting is that trading in the core UK business, responsible for half of group revenue, was recently reported as solid on a steady stream of utility and highways work. Any further increase in infrastructure spend would clearly be a boost. With an attractive dividend to boot, the shares are a buy

This year's Isa share picks

44. Centrica (CNA)

Gas, water & multiutilities

Price: 349p

A looming energy crunch means Britain's households will be bracing themselves for bigger fuel bills in the year ahead, but investors can at least insulate themselves from some of the pain by snapping up shares in Centrica (CNA). A number of announcements from the gas and electricity giant have also removed some of the lingering uncertainty that had been hanging over it.

Last month it announced that it was to walk away from plans to build four nuclear reactors in partnership with French energy giant EDF, which will save it £500m that will be returned to shareholders via buy-backs - in itself a fraction of the costs it could have incurred had the ambitious construction plan gone ahead. Centrica also cleared up uncertainty over management of its important British Gas unit - former US chief Chris Weston is moving over to run the unit, which contributes 39 per cent of the group's operating profits.

Centrica's shares are underpinned by high oil and gas prices so, while on a forecast PE ratio of 13 they're not cheap, they look solid given that Centrica's margins are set to expand this year as UK power prices rise - up to 10 per cent of the UK's generating capacity is set to shut down as inefficient carbon-belching coal-fired stations are priced out of existence by a new carbon tax. Centrica has also announced plans to increase upstream gas production and double operating profits in North America, which means the shares remain a buy.

45. Restaurant Group (RTN)

Travel & Leisure

Price: 400p

Restaurant Group (RTN), owner of chains including Frankie & Benny's and Garfunkel's, has seen its shares underperform the market over recent months. However, prospects for the group look set to pick up in 2013 as trading will not be impinged on by the raft of national events that kept punters away from its outlets last year. And, given that many of the group's restaurants are located near cinemas, recent strong box office figures also bode well.

As well as sites by cinemas, the group targets other areas where there is persistent high footfall, such as airports, which underpins the strong returns it sees from new openings. The true attraction of the business for long-term investors is that the business is highly cash generative, which supports a self-financing expansion strategy.

The roll-out of a new restaurant format called Coast to Coast should boost growth prospects, although it reduces the chances that the strength of the company's balance sheet will be used to return cash to shareholders beyond ongoing strong dividend growth.

46. Compass (CPG)

Travel & Leisure

Price: 805p

The horsemeat scandal and its repercussions for the food industry demonstrate just what an advantage international diversity can be. Catering giant Compass (CPG), which has been affected by the scandal, has actually been benefiting from the geographic diversity of markets it serves for a number of years.

Its businesses in Europe and Japan have seen sluggish trading for a number of years. However, growth is strong in North America and in emerging markets. That is underpinning overall progress, which included very impressive 6 per cent organic sales growth in the first half of 2012. The group's long-term prospects are underpinned by the move globally towards outsourcing catering to cut costs and conform with increasingly complex regulations. Bolt-on acquisitions also form an important part of Compass's growth strategy but the strength of its cash generation means there was also money left over to fund a £500m share buyback last year and a £400m buyback this year.

47. Unite (UTG)

Real Estate

Price: 298p

Unite (UTG) has long been an IC favourite. Its shares are that rare thing - a reasonably cheap play on a growth market. The market in question is student lets, where rental growth has for some years been a steady 3-4 per cent. There are, as ever, reasons why the shares are cheap - not least a £501m debt pile the company never seemed to have the powers of cash generation to support (and forget dividends). But since a couple of tough decisions - chief executive Mark Allan closed down a boom-era room manufacturing arm that never hit the capacity targets needed to turn a profit - cash generation has improved drastically. And Unite has also shown it can borrow at attractive rates, having signed a £121m loan with Legal & General last year. The shares have surged 57 per cent over the past year, but we think the recovery story has further to play out. The shares now trade at 298p, 11 per cent below book value last June. Given the solid growth potential of Unite's assets, that doesn't look stretched.

48. William Hill (WMH)

Travel & Leisure

Price: 404p

Probably the most difficult decision in picking shares for an Isa is deciding whether to go for tax-free growth if the share price rises decisively, or tax-free income. Income is useful, of course, but potential growth prospects are equally as important if a company has built up a decisive edge in its industry. William Hill (WMH) poses just such a choice as the company's forward rating of 18 represents a significant re-rating from its traditional level. However, technology is on Hill's side, particularly mobile phone betting, and its partnership with technology company Playtech has put it decisively ahead of its UK rivals. This is the main reason why the bookmaker is seeing its operating profits grow by an average of 20 per cent a year. The online operation is run in partnership with Playtech and Hill will decide this year whether to buy Playtech out of the online partnership. That will be expensive but, if successful, the company's profits will grow even faster in absolute terms.

On a forward PE of 18, the shares offers a dividend yield of 3.5 per cent.

How 2012's Isa shares performed