Oliver Shah: Standard Life Aberdeen
The merger of buccaneering Aberdeen Asset Management and its staid Edinburgh rival Standard Life has so far been messier than a haggis-hurling contest after several pints.
I am tipping the enlarged group not because I think the deal was a great idea (I don’t) or because the cultural combination fits particularly well (it doesn’t), but because if anyone can stabilise the fund manager it is Sir Douglas Flint, who takes over as chairman on Tuesday.
The former HSBC grandee inherits several problems. “Staberdeen” has been haemorrhaging investors’ money, with outflows totalling £16.6bn in the half-year to August 7, down marginally from £17.9bn in the previous six months. The Global Absolute Return Strategies fund, once a standout performer, has come off the boil and there are rumours of ill feeling between the former Aberdeen and Standard Life camps. Flint, 63, also has an immediate quandary: does he sack one of the joint chief executives, Martin Gilbert or Keith Skeoch, or both, or neither?
A wily operator who has seen his share of boardroom shenanigans, having spent 22 years at HSBC as finance director and chairman, Flint should have the nous and patience to make the right decisions. His Chinese connections — he is the Treasury’s belt and road envoy — could help broaden the shareholder base, too.
The share price halved during 2018. It closed at 258.8p on Friday, valuing the business at £6.6bn. If the board can stop the haemorrhaging — and I admit it’s a big “if” — that could look cheap.
John Collingridge: Essentra
I’m backing a business that makes everything from cigarette filters to oil industry components. Recent years have been woeful for investors, with the share price down from more than £10 in March 2015 to 334.2p. A series of profit warnings put paid to former chief executive Colin Day.
His successor, Paul Forman, previously boss of Coats, has had a tough time since joining at the start of 2017. There is reason to believe that the worst is behind Essentra, though.
Forman is a turnaround specialist and under him the company has taken its medicine, deciding to close a factory in south Wales and returning its misfiring packaging business to growth. In August, it reported its first profit rise since 2015. Yet the shares have continued to fall amid fears that Essentra will stumble again.
There are reasons to be nervous. Like all manufacturers, it is worried about the impact of Brexit on its supply chain. Also, debt has been creeping up. That has led some analysts to question whether the dividend is sustainable.
The management team, however, clearly believes the company is undervalued, and have been buying shares with gusto this year. Follow their lead.
Sam Chambers: Tesco
As Sainsbury’s and Asda busy themselves butting heads with the competition regulator over their mooted merger, Tesco quietly cut its prices in the lead-up to Christmas, which looks a smart move after the recent nosedive in consumer confidence. Chief executive Dave Lewis, now joined in the boardroom by the highly rated former Booker chief Charles Wilson, nailed his colours to the mast with a target of getting profit margins up to between 3.5% and 4% by 2020, a promise he will be desperate to keep.
The big threat for Britain’s leading food retailer is the prospect of supply chain disruption from a no-deal Brexit, but with almost a quarter of its profit made overseas, Tesco has a nice hedge against any further drop in the pound, and will be able to weather the Brexit storm better than most.
Peter Evans: Cineworld
The curtain is about to come up on the most successful year in British cinema history — and that means Cineworld is the hottest ticket in town.
The FTSE 250 chain is in prime position to benefit from a year of blockbusters that look set to break box-office records. The next instalments of Star Wars, the Lego Movie, Spider-Man, the Avengers, Toy Story, Frozen — not to mention live-action versions of Dumbo and the Lion King — are slated for release in 2019. All are predicted to break $1bn (£800m) in worldwide ticket sales.
The shares have performed solidly this year in a tumultuous market, finishing roughly where they started at 254.2p. However, a recession next year might play into Cineworld’s hands: cinemas offer an affordable treat, so generally perform strongly in economic downturns.
Cineworld, run by chief executive Mooky Greidinger, became the world’s second-largest chain following its $3.6bn purchase of US rival Regal Entertainment last year. With such a blockbuster year ahead, it now looks like a bargain.
Danny Fortson: Tesla
William Gibson famously proclaimed: “The future is already here — it’s just not very evenly distributed.” If you want to bet on the future of the car industry you can. It’s Tesla.
Arguments against Elon Musk’s electric car maker are easy to sling around. It is a perennial loss-maker, has a long history of serious production problems and is run by an erratic chief executive who digs holes on Earth and shoots rocket into space in his spare time.
Yet 2019, I reckon, will be the year that the rest of the industry realises that the future has indeed arrived, courtesy of Tesla. After a torrid year full of miscues, Tesla’s factory in Fremont, California, finally appears to be starting to hum. Every week it is pumping out thousands of vehicles, for which there is waiting list that exceeds 400,000.
The coming year is also when Tesla should finally break into the black. Revenues will have nearly doubled to $21bn (£16.5bn) in 2018, while losses are set to shrink by 80% to $220m. Normal valuation methods do not apply to Tesla. It is, after all, a $54bn car company — the shares trade at $316.63 — that has turned a profit precisely once since it floated in 2010. Yet it has none of the legacy issues its Detroit and Frankfurt rivals do. Its products are dramatically different — and many say far superior — from any its rivals have so far come up with.
So strap in. It will be a bumpy and exhilarating ride to the future.
Liam Kelly: Games Workshop
Heroes such as Grombrindal, Aenarion and Tancred d’Quenelles are better known among bedroom-bound teenage boys than investors, but characters from the hit fantasy game Warhammer have powered one of the best performers in a year of woe for the retail sector.
Games Workshop, the FTSE 250 retailer that launched the medieval-inspired tabletop miniatures game, has defied the gloom that is engulfing the rest of the high street with its niche offering and loyal fan base who painstakingly paint their metal and plastic models. It closed up 15.2% over the year at £29.20.
Crucially, as uncertainty about Brexit continues, Britain accounted for less than 30% of the Nottingham-based retailer’s £220m sales last year, with growth particularly strong in North America, Germany and Asia.
Some three decades after it was launched, sales of Warhammer starter packs continue to grow and new adherents are still getting involved. Pre-tax profits nearly doubled to £74.5m last year after the launch of the eighth edition of space-age Warhammer 40,000.
Plus, as the company owns the intellectual property behind the wildly successful franchise, it is looking at branching out from the tabletops and into other markets — such as animation and live-action — as alternative revenue streams.
Games Workshop was the best-performing FTSE stock in 2017, and largely kept up its good run this year. Despite that, there is still room to grow. The share price briefly touched £40 in September, before the company spooked investors with a vague update warning of “market uncertainties” weeks later.
However, it has recovered, forecasting half-year results in line with expectations at the start of the month, and rewarded investors with another 30p dividend, on top of the 126p they received in June. I am backing it to reward investors — and gamers — again.
Sabah Meddings: Hikma Pharmaceuticals
This year I got my fingers badly burnt making a death-or-glory bet on a one-drug pharmaceutical stock. Next year, I will not make the same mistake.
In a world where health insurers — and US President Donald Trump — are lashing out over high drug prices, manufacturers offering cheaper alternatives can be an attractive investment.
Hikma is one such company. After a tumultuous couple of years when it faced pricing pressure in the US and (so far) failed to win approval for its copycat version of Glaxo Smith Kline’s best-selling asthma drug Advair, Hikma seems to be on the rocky road to recovery. It rejoined the FTSE 100 last week in the latest reshuffle, and has enjoyed a 47% rise in its share price during 2018, closing the year at £16.84.
Hikma has benefited from a drugs shortage in the US, where it has been able to step in to supply products that hospitals cannot get elsewhere. Outside the US, it is attractive thanks to its 2,000-strong sales force in the Middle East and north Africa.
Large pharma companies are interested in partnering Hikma in the region due to the difficulty selling to local customers. Japanese drug giant Takeda, which snapped up London-listed Shire this month, recently stopped direct sales of three of its products and licensed them to Hikma instead.
Meanwhile, the generic drug price erosion in America appears to be stabilising — at high single-digits — and Hikma has worked hard to cut costs to boost margins. There is also hope for generic Advair — expected to win approval in 2020.
There are reasons to be nervous: pharmaceuticals companies are notorious for promising big things and then failing to win approval for new drugs, but Hikma has a diverse business, and analysts are expecting good things in 2020. So am I.
Rachel Millard: Energean Oil & Gas
After the rollercoaster oil price this year, backing an oil and gas stock might not feel like an appealing ride — but not all explorers are created equal. East Mediterranean-focused Energean joined the London Stock Exchange last March, raising $460m (£362m) in the largest oil and gas float for nearly four years. Since then, its share price has risen by about 200p to 636p and analysts believe there is a lot more to come with attractive exposure to the fast-growing Israeli gas market.
Energean is due to start producing gas from its fully funded flagship Karish field off the coast of Israel in 2021, with fixed-price sales agreements already in place securing about $12bn of future revenue. From that relatively secure position, the stock has potential for fun, with Energean due to start separate exploration drilling in the Karish block early next year.
Demand for gas in Israel is set to grow as the country shifts away from coal, while the privatisation of gas-fired power stations could mean further gas supply contracts come up for grabs. In the long term, Energean is also set to boost production from its Prinos development in Greece, with new guidance expected next month.
There are always risks in oil and gas projects, but board and management have put their money where their mouth is, owning more than 27% of the stock. It’s an encouraging sign.
Tommy Stubbington: Fresnillo
When markets are in turmoil, buy gold. That time-honoured strategy has served investors poorly in 2018, with the price of the precious metal sinking as shares around the world chalked up their worst 12 months since the financial crisis. Next year should be different.
Stock market turmoil looks set to continue amid concerns about trade wars and the possibility that a US recession could be around the corner. However, the prospect of another factor that is bad for both shares and gold — sharply higher US interest rates — appears to be fading.
The Federal Reserve has indicated that it plans to slow the pace of rate increases next year. Gold bugs, who love low interest rates and a weaker dollar as much as they love instability, will be rubbing their hands with glee.
This is good news for Mexico-based miner Fresnillo, which makes about 40% of its revenues from gold (and the same from silver) and whose shares have fallen in tandem with precious-metals prices this year. Moreover, investors in UK shares have run out of other options if they want to benefit from a golden renaissance, with rival Randgold Resources delisting at the end of last year after its merger with Barrick Gold.
One cloud on the horizon is Mexico’s new left-wing president, Andres Manuel Lopez Obrador, who may restrict mining in the country. However, a lot of that gloom is already priced into the shares following a slump last month. They closed last week at 870p.
Ben Woods: Entertainment One
Can Peppa Pig bring home the bacon in 2019? Entertainment One’s porky powerhouse has been a phenomenal success story. While the party is unlikely to go on for ever, I am betting the cartoon character still has plenty of magic to offer, especially given the plans to give Peppa a big-screen debut in China next year.
Analysts seem to agree. Expectations of another strong performance from the group’s “family” division — which includes Peppa — has led to some punchy predictions. The investment bank JP Morgan has set a price target of 572p, implying an upside of more than 60%.
But let’s be clear: Entertainment One is not without its challenges. The acceleration in viewers switching from DVDs to internet streaming services left it nursing a £40m pre-tax loss in the six months to the end of September.
The company, which is listed in London but based in Canada, is also navigating another tricky transition. It is trying to shift away from distribution towards owning more content. This would appeal more to Netflix and Amazon, which often want global distribution rights for the content they buy.
If it executes this change well, Entertainment One could once again find itself in the sights of a bigger predator. ITV ended its takeover pursuit two years ago, but production companies are hot commodities and the video streaming boom has a long way to run.