Share Investor: Share Investor's 2012 Stock Picks

2011 has been a hard year on the stockmarket but lets forget about all the drama the PIIGs, Greek meltdowns, American deficits and massive bloated debt that threatens to strangle all before it and reinstate the stock picking monkey to pick stocks for 2012 .

It is the 5th edition this year and promises to be one of the most interesting if only for the possibility that 2012 will be a worse year for stocks than 2011.

In the face of a continued global recession, an uncertain economic future that had a big impact at the end of 2008 and continues today 2012 will be harder to pick than 2011.

Please keep in mind dear readers that the picks are my own and they reflect my investment philosophy and not necessarily anyone else's.

My picks are primarily based on a long-term view, regardless of the current short to medium term market turmoil and economic uncertainty.

NB: Since I think most of my portfolio consist of the best stocks on the New Zealand market, I found it difficult to pick stocks outside my realm of self interest.

NB 2: Stock prices quoted range from Dec 1-10.

Share Investor's 2012 Stock Picks

Picks from the NZX

Sky City Entertainment Group Ltd
[SKC.NZX]

http://chart.bigcharts.com/custom/fairfax-com-nz/summary-chart.img?symb=NZ:cen

Contact Energy has had a tough 2011 with stagnant profits and falling customer numbers but 2012 is shaping up to be a better year for the company.

Drought conditions experienced now and forecast to continue across Summer are going to benefit a generator like Contact considerably and this will go straight to the bottom-line. Customer numbers have stopped falling and have showed some small gains over the last 3 months.

The are also persistent rumours that majority owner of the company origin Energy Ltd[ORG.NZX] are still interested in taking full control at some stage.

The share price started the year at just under 6 bucks and has traded the year below that price for the majority of 2011 and even hitting the mid $4.70 mark in August and at the current price of $5.52 is still looking a buy

I bought some at $5.34 in July and I think investors have bailed too early considering things are finally starting to go their way. Look to buy before Winter 2012 because I am picking a good one for the company because of what I have outlined above.

A good defensive stock in times of economic uncertainty as 2012 will no doubt be.

Disc I own CEN shares in the Share Investor 2 Portfolio

Contact Energy @ Share Investor

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Discuss this stock at Share Investor Forum - Register free
Download CEN Company Reports

TradeMe Ltd
[TME.NZX]

While only just listed at the time of writing, TradeMe could be one of those company's that continue to do well in 2012 despite global economic uncertainty. A good defensive monopoly stock in these terms as they tend to do even better during the hard times. TradeMe has a good track record and should do well in the medium term.

Plenty of demand for the IPO should see an improvement in share price.

The company is looking for a Pro-forma $65 million profit for the 12 months to June 30 2012, down from $69.8 million in 2011, so a reasonably steady bottom-line should be good for a reasonable dividend payout through 2012 and beyond.

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Sky Network Television Ltd
[SKT.NZX]

Sky Television is a company that has done well over 2011. A 2011 full year profit up by nearly 17% on revenue up just 7.4%, the company has benefited by increased customers, the switch of present customers to premium digital services and the 2011 Rugby World Cup.

2012 will see the company consolidate this growth with the continuation of the digital switch, a move towards internet TV and the 2012 Olympic Games. All good revenue earners.

Another good defensive monopoly (like all the companies listed above this stock pick), SKT is insulated somewhat from the global economic crises more than other stocks because it gets its revenue from inside New Zealand.

At its current share price of $5.35 it is close to 12 months lows of $5.25, so at this price it makes a good net return of around 6%.

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Trustpower Ltd
[TPW.NZX]

Trustpower had a 2012 first half year result up nearly 20% on the previous year and is a well run company with a good track record. With 220,000 customers this generator and retailer is around half the size of Contact Energy but shows a more consistently even return on investment.

The areas that it services are geographically spread but mostly in rural areas where business is still strong and servicing a large number of dairy farms that are still doing good business and are likely to need a growing energy demand as 2012 rolls on.

With a gross dividend yield of just over 7% this beats Contact's yield by around 1.5% and that figure alone is a good reason to buy this stock at or near these prices levels in these high inflationary times.

The stock is currently trading at its 12 month lows.

Trustpower @ Share Investor

Long Term View: Trustpower Ltd

Discuss TPW @ Share Investor Forum
Download TPW Company Reports

Vector Ltd
[VCT.NZX]

Vector is the last electricity company included in the 2012 picks and it has been picked principally because of its high gross return of nearly 8%, its defensive nature as an essential utility and a reasonable if unexciting long-term investment.

Vector achieved a 2011 full year profit of just over $200 million, an increase of 4% on 2010. Management expect 2012 EBITDA to be up slightly so just watch the share price which is currently tracking at $2.47 for any pull-backs as the stock is trading close to its 12 months highs of $2.65.

Vector @ Share Investor

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Fisher & Paykel Healthcare Ltd
[FPH.NZX]

I have included Fisher & Paykel Healthcare in 2012 because I still consider will be one of the big successes of the next 5-10 years and one I included in the 2008, 2009 ,2010 and 2011 Share Investor stock picks,.

It is not only a company with good long-term prospects but a company that is another good hedge against the current global turmoil. Despite the grim economic conditions over the last few years it has managed to grow revenue well and only suffering slightly with a decreased profit because of the weak US dollar. Their products will still sell well despite a possible downturn in other business sectors.

Its share price has done nothing over the last 12 months but as I said above economic conditions have failed to dent its prospects and 2012 looks to show more of the same.

With a 2012 half year profit and revenue up strongly on 2011 2012 looks to be an even better year than 2011 in terms or business operations.

Its share price has suffered since I picked it at around $3.10 12 months ago, so this of course makes it an even better pick than 2011 when you consider at the current price of $2.40 the stock is returning a healthy 7 % plus gross dividend.

FPH shares have been at a low of $2.13 in September due to currency weakness in the US dollar (It gets the bulk of its revenues in US dollars but does have hedging) so when making your pick next year tend to make your play when the US dollar is under pressure.

Disc I own FPH shares in the Share Investor Portfolio

Fisher & Paykel Healthcare @ Share Investor

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Ebos Ltd[EBO.NZX]

Ebos Ltd is another company that should withstand the economic rigours of 2012. 2011 saw them produce a full year 2011 profit up nearly 19% on 2010 on revenue up by 200 million.

EBOS is a leading supplier and distributor of both specialty and generic medical and pharmaceutical products to the New Zealand, Australian and Pacific Islands public and private healthcare sectors and is, like Fisher & Paykel Healthcare, somewhat insulated from the macro conditions that usually influence other companies.

The company has doubled profit over the last 4 years and has a good track record historically.

The share price is off its 12 month highs of over $7.50 and at its current share price of $6.10 is paying a healthy dividend of over 7% gross. The company has a history of increasing dividend payouts.

The company is very positive for growth in 2012 and have lowered debt considerably over the last few years.

EBO @ Share Investor

Long Term View: EBOS Group Ltd

Discuss EBO @ Share Investor Forum
Download EBO Company Reports

Mainfreight Ltd
[MFT.NZ]

I am picking Mainfreight for 2012 after leaving it out for my 2011 picks because it had gained 30% in value after I picked it in 2010 and I considered it overvalued at just under 8 bucks.

At just under $10 at time of writing and after reaching an all-time high of $10.72 in July 2011, the share price now is 20% higher than what it was at the end of 2010 when I picked it, you might be wondering why I am picking MFT for 2012.

Well, you will already know why if you are a regular reader of this blog that I think Mainfreight is a company that is the best managed company and with the best prospects on the NZX.

Mainfreight is a dominant player in the logistics sector in Australasia and has businesses in North America, Asia and now Europe with the acquisition in mid 2011 of the Wim Bosman Group. It has designs on becoming a global logistics player, has surpassed 1.2 billion in revenue in 2011 and has a stated aim of doubling in size over the next 3-5 years.

Mainfreight has had a great 2011, with 2012 first half result profit significantly up and its share price has picked up as a result and long-term their lengthy track record of success looks likely to continue.

Having been glowing about its prospects long-term, 2012 could be a bad year for the company as global trade looks set for a downturn as the European debt crises bites on their economy hard and the outlook for the global economy is more than a little negative.

Logistics companies are one of the first sectors to feel the impact of economic downturns and I think this might be a good opportunity to buy on weakness in the share price in 2012.

Buy below 6 bucks with a view to hold a minimum of 5 years for superior returns.

Disc I own MFT shares in the Share Investor Portfolio

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Xero Ltd
[XRO.NZX]

My final main pick but certainly not the least, is Xero , the online accounting software company. Xero is a niche player in an industry dominated by global players like Quicken and MYOB and it increased its customer base significantly in 2011 and looks set to build on 2011's gains. It has however put the break-even point for the company in terms of net profit off until 2012 - that deadline was supposed to be reached late this year.

It is presently building its customer base to get "critical mass".

The buzz in the tech industry surrounding Xero is reflected in the amount of support the company has from insiders and it could be well a big player in time to come. The company has had some significant financial backers from those who know Xero well but Mums and Dads are still largely absent from the shareholder register.

XRO is a little riskier than most investments and the share price has finished the year off pretty much where it began but took a dip close to 2 bucks in July.

I include Xero this time because even though founder and CEO Rod Drury told me in 2010 that he wasn't going to sell the company and was dedicated to seeing it through to a stage where the company would be a global player, I think that he maybe tempted to take offers going at a time where the company could struggle to maintain revenue growth and therefore gain that critical mass. Xero would be valuable to a Quicken or MYOB as an add-on to their businesses.

Buy on dips below $2.50.

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Other Notable Quotables

Auckland international Airport Ltd [AIA.NZX] A good monopoly at historically cheap prices, doing better in 2012 and set to pick up profit again in 2012.

Fisher & Paykel Appliances Ltd [FPA.NZX] has been beaten down to penny dreadful status and currently trading at 35c but still has brand recognition and could recover in late 2012 somewhat if the Christchurch earthquake rebuild kicks off. An off side chance if you want a punt.

Steel & Tube Ltd [STU.NZX] & Fletcher Building Ltd [FBU.NZX] have both been given a hammering share price wise in 2011 and both will benefit greatly from a Christchurch rebuild supposedly kicking off in late 2012. Watch for share price dips to buy when overall market sentiment is negative.

As you might also think I recommend every stock in the Share Investor Portfolio - except PPG, PPL and GFF. The last 3 are turning into stinkers.

Nasdaq

YUM! Brands Inc
[YUM.NASDAQ]

A pick from 2010 and 2011 Yum ! Brands Inc achieved a target of 10% sales growth for 2011 and with more tasty growth to come in 2012 and beyond from China & India still make this company a Finger Lickin proposition.

ASX

Coca Cola Amatil
[CCL.AX]

Coca Cola Amatil is the dominant player in the carbonated drinks market in Australasia. It sells its iconic Coca Cola brand as well as a large number of other well known brands in New Zealand, Australia, Indonesia, Fiji and a number of other markets in this part of the world. Their 2010 Annual Report shows a record profit of nearly AU$ 500 million on strong revenue growth.

A strong history of profits can be a good sign that there is more to come in the future and the fact that its customers are largely addicted to its products makes this company a great long term bet. I have always liked this company because it keeps managing to grow its business with clever marketing and product placement at sales outlets.

Buy on any weakness for superior long-term returns.

Coca Cola @ Share Investor

Coke is it!

Discuss Coca Cola @ Share Investor Forum

Conclusion & Outlook for 2012

2012 may well be a year of some severe downward corrections on global stockmarkets. As uncertainty surrounds the fragile state of many economies and the precarious state of Europe's debt yoke and more pain and drama to come in the United States as politicians argue over spending cuts to stop the country from defaulting. Gains made on stockmarkets in 2011 could materialize for some as nervousness over the aforementioned leaves them to take cash off the table. It is clear that there is much more bad news in relation to the global economy to come and the consequences of this bad news one can only guess at but it will not be pretty at all.

That aside if you can, some listed companies have done well in 2011 and will continue to do so in 2012 but others will find the going tough as cash flow dries up, debt mounts and interest rates bite.

I have concentrated largely on defensive monopoly type stocks for 2012 with the bulk or all of their revenues coming domestically and picked in 2012 will do comparatively well for that year and should do well over the next 5 years or so as we see these uncertain economic times continue.

If there is no upturn in the economy, stockmarket share price weakness will have me poised to buy further shares in some of the companies I own in the Share Investor Portfolio with surplus cash of over $32,000.00 in dividends and some with borrowed funds if there are some really good bargains to be had. I am looking at buying more Fisher and Paykel Healthcare Ltd [FPH.NZX] shares should the share price fall further with US dollar weakness.

Remember, the stocks I have picked above are based on my investment criteria and may not fit yours and of course you could have a different opinion. I would love to hear your opinion and any picks you may have.

Have a look at what I have to say, take it on board or not and then do your own research to see if you might agree with me.

Lastly, I wish you all good luck and a prosperous 2012, we are going to need it!

**Just an added footnote. Please feel free to post your own stock picks for 2012. The only requirement is that you say why and declare any financial interest. Post them below at the bottom of this piece or click here .

Disclosure : I own FPH, SKC, CEN, AIA, FBU & MFT shares in the Share Investor Portfolio.

Share Investor's Annual Stock Picks

Share Investor's 2011 Stock Picks
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Share Investor's 2009 Stock Picks
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Brokers 2012 Stock Picks
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c Share Investor 2008 - 2012

9 comments:

AnonymousDecember 13, 2011 at 11:29 PM
I am thinking BFW might be worth a few dollars considering their first profit made this year.

The Middle East looks promising for them.
TrendwatcherDecember 14, 2011 at 9:15 AM
I like WHS for a punt on a possible turnaround in 2012. The share price is also low enough for a good dividend return until/if this happens.
Share InvestorDecember 15, 2011 at 9:01 PM
Just by way of explanation. Anna Hirst, investor relations manager from VCT emailed me with the following: "I saw your article picking Vector as one of the top picks for 2012 (below).

http://shareinvestornz.blogspot.com/2011/12/share-investors-2012-stock-picks.html

I just wanted to clarify one point. You comment “Management expect 2012 EBITDA to be up slightly”. At our AGM management said “We expect EBITDA to be slightly above current market consensus, which is currently around $610 million”.

Headline 2011 EBITDA was $636.6 million and excluding the one-off Transpower deal 2011 EBITDA was $594.2 million".

I excluded the one-off gain for 2011 so this is why I indicated an EBITDA that was slightly up.
Share InvestorDecember 15, 2011 at 9:02 PM
If you wanted to question me on any of my picks please mount your argument below.
AnonymousDecember 19, 2011 at 7:48 PM
sky has it far too easily in nz.. in it's current regulation free world it seems a good pick.. but i wonder if any government has the balls to level the playing field on skys content.. and what effect this has on skt share price
AnonymousJanuary 1, 2012 at 2:22 PM
NZ Refining might be worth a look. Down to $2.80 with some downwards pressure in 2012 due to maintenance costs. Worth buying under $2.50 for a long-term gain.
Port in a StormJanuary 9, 2012 at 9:10 AM
Daz, I would have picked Auckland Airport considering its monopoly position and the fact that even you acknowledged today http://shareinvestornz.blogspot.com/2012/01/arial-map-of-auckland-airport.html that the port is attractive to overseas investors.
Penny Stock InvestingMay 27, 2012 at 7:05 AM
I wonder If wallgreens or CVS would be likley to buy Rite Aid stores. This might seem like a bad move but not really. Most of Rite Aids problems stem from the Rite Aid acquisition of a large canadian drug store chain. And the massive amount of debt that they incured doing so. If Rite Aid had no debt they would be almost as profitable as walgreens and CVS. Combing Rite Aid with CVS or Walgreens would make the percentage of debt of the companies much smaller in relation to their size. Rite Aid is one third the size of wallgreens or CVS. Compare the percentage of debt to sales if Rite Aid was Combined with walgreens or CVS' it would be a much more favorable debt percentage compared to what it is now for Rite Aid as a stand alone company. Wallgreens in particular is now running out of prime locations to build news stores in the united states. An aquitsion like the one that I outlined above might be a wise move if done correctly.The acquisition of Rite Aid by Walgreens or CVS would substantially lessen the debt burden by spreading it across a much larger base. Also the market cap of Rite Aid is extremly low so the cost of acquiring all the common shares would not be a significant percentage of the acquisition price..
Share InvestorJuly 23, 2012 at 2:50 PM
Interesting to see XRO take on the big boys! Shame about PPG & GFF sold them both and KIP dumb buys, PPL wasnt though.

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Monday, December 12, 2011

Share Investor's 2012 Stock Picks

9 comments: