Midas Extra top picks from 2010
Stock market activity has been unusual this year. Surges of optimism have been swiftly followed by fears about the future.
Hopes that a new Government would herald brighter economic prospects have been tempered by grim reminders of Britain's parlous financial position.
Chancellor George Osborne's Spending Review, the prospect of higher taxes and the increase in VAT to 20 per cent next year have left many businesses worried about 2011 - yet the FTSE 100 index is still set to end the year a good 10 per cent higher than it started and many shares have performed well.
Midas Extra has had a good year too and some recommendations, such as Arian Silver, Blinkx, Johnson Service Group and Supergroup have done particularly well.
Arian Silver owns a silver mine in Mexico, Blinkx operates an online search engine for videos, Johnson Service Group runs a dry-cleaning and uniform business and SuperGroup is a trendy clothes retailer.
That four such different stocks should each have delivered an impressively strong performance illustrates the breadth of opportunity available on the stock market.
Some companies do well because they are in an attractive or fast-growing sector.
Most only deliver on a sustainable basis if they are well run by smart management teams with a clear strategy and sense of direction.
Blinkx is a case in point. Creator of the world's largest and most advanced video search engine, Blinkx does for videos what Google does for the written word. The company is run by Suranga Chandratillake, who invented the technology while he was at Autonomy, the FTSE 100 software specialist, run by academic turned entrepreneurial success story Mike Lynch.
Chandratillake seems to be following in his mentor's footsteps, combining technological expertise with commercial nous. Midas recommended Blinkx in June when the shares were 38p. Today, they are 84.5p, so they have more than doubled in just six months.
Investors may be tempted to bank some profits at this financially demanding time of year but they should retain half their stock as Blinkx has a long way to go – and could even become a takeover target in time.
Arian Silver is another startling performer. Midas Extra recommended the shares just three months ago at 18p. Today they are 49.25p, so they too have more than doubled in price. The surge reflects a soaring silver price on the commodity markets but it is also thanks to Arian's doughty chief executive, Jim Williams, who is committed to creating a first class silver mining company and has put in place an impressive exploration and development programme. Willliams has a four-year plan for Arian so there should be further share price outperformance. Indeed the stock has risen 38 per cent in the last month alone.
Nonetheless, no one ever lost out from taking profit from an investment so it would be wise for investors to sell a third to a half of their holdings. Keep the rest though, to see how Williams puts his plan into action.
As for SuperGroup, the company floated on the stock market in March, when the shares were priced at 500p. Today they are 1,260p. Before the float, Midas Extra suggested the stock might be worth a short-term punt, although we highlighted the fickle nature of fashion retail.
The share price performance to date might suggest we were too cautious. But recent events are noteworthy.
In mid-December, SuperGroup had risen to more than 1600p. The company then announced interim results to 31 October showing pre-tax profits up 86 per cent to £14.6 million and sales up 65 per cent to £90.3 million. But the strength of these figures was overshadowed by chief executive Julian Dunkerton's admission that profit margins would be hit next year by the rising price of raw materials. The stock reaction was a sharp reminder of how unforgiving the market can be.
Investors who bought last March should not lose faith entirely but they may choose to lock in gains by selling 60 to 70 per cent of their holdings.
Johnson Service Group (JSG) has also enjoyed a strong innings since Midas recommended it in March at 19.5p. The business lost direction for years but is now under the stewardship of John Talbot, who specialises in putting companies back on their feet.
He is doing a stalwart job at JSG and the shares are now 29p, a rise of 52 per cent. Profits are rising and the company has become much more focused. But dry-cleaning and uniform rental tend to do better when times are good so there should be plenty of mileage in this business. Hold the shares.
Midas Extra recommended two stocks at the very beginning of this year – engineering group Invensys and premium insurer Hiscox. Both have proved rewarding as tips for 2010. Invensys has risen 15 per cent from 312p to 358.7p and Hiscox has climbed 17 per cent from 320p to 375.1p.
In January, we said Invensys has transformed itself under the leadership of Swedish industrialist Ulf Henriksson. The company has three divisions, Invensys Operations Management (IOM), Invensys Railway Group (IRG) and Invensys Controls (IC). The first designs and installs software systems that make manufacturing safer and more efficient, ensuing facilities are at the right temperature for example, or moving at the right speed. The second makes signalling equipment for railways and the third makes sophisticated controls for fridges, washing machines and other kitchen appliances.
Earlier this month, Invensys delivered half-year figures for the six months to 30 September, showing a 2 per cent fall in operating profit to £100 million but a 50 per cent increase in the interim dividend to 1.5p. The fall in profit largely reflected some one-off costs in the rail division but Henriksson expressed confidence about the future, particularly in emerging markets. Brokers tend to believe him and rate the shares a buy. They are almost certainly right. Hold.
Hiscox is a solid business and it has been making progress, focusing on specialist areas of insurance, where it can charge decent premiums and moving away from highly competitive areas or those where the background is uninviting, such as US property insurance.
Insurers make money from charging customers for policies and investing that money until they have to pay out claims. The investment climate has been difficult recently so returns are lower than usual - in the year to 30 September, Hiscox own investments delivered a 3.2 per cent return. Investors in the company have obviously done better than that and cautious shareholders may want to stick with this business as the economic environment improves. Others may choose to sell out and invest in something a little more adventurous.
Next week, we shall be looking at what 2011 has in store. Happy New Year!
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