Looking back on 2012, the highlights were undoubtedly the Olympics and the Queen’s Diamond Jubilee. What we’d like to forget is the financial misery, job losses and the unending sovereign debt crisis in Europe.
Against this unpromising backdrop, the UK’s leading stock market index – the FTSE 100 – experienced ups and downs this year. It enjoyed a good run in the spring before dipping below the 5,300 mark in May due to the turmoil in the eurozone. However, since then it has gained ground and, at just over the 5,900 mark, is currently trading around its March peak.
Stock market winners
When it comes to the best performing shares this year, however, eyebrows may be raised. Despite the difficult trading conditions, some household names performed exceptionally well in 2012 - just not the ones you might expect.
“It’s quite surprising,” says Chris Beauchamp, market analyst at spread betting provider IG. “The winners are essentially a list of the damned.” Shares in pub operator Enterprise Inns are up 250% over the year, while those in retailer Dixon’s are up 181%. Shares in ailing travel agent Thomas Cook also jumped by 179%. Meanwhile, struggling babywear retailer Mothercare saw its shares rise 95% over the year, while Easyjet’s were up 91% despite rising fuel prices.
“An interesting one is that housing has done well – Barratts is up 112%, Persimmon is up 69% and Taylor Wimpey up 67%,” notes Beauchamp. “Whitbread is also up 67%. However, the really big winners are the companies that people thought were on their way out but that have recovered. Debenhams is up 100% and we know how difficult the retail sector is at the moment. Next is also there with a 40% gain.”
Richard Hunter, head of UK equities at broker Hargreaves Lansdown, notes that shares in struggling Lloyds Banking Group rose 80% over the year. “But even though Lloyds is up 80%, if you take a five year view, it’s still down 80%,” he points out. “Clearly there was money to have been made but it’s from a low base. If you compare where we are to a year ago, the travails that the banks have had to go through [have been difficult]. To some extent they’ve become [short-term] trading stocks rather than investing stocks.”
Stock market losers
The mining sector was the biggest loser this year, with many stocks performing poorly due to concerns over slowing Chinese growth. China is currently the biggest worldwide market for raw materials but economic growth forecasts there have been cut. Shares in Eurasian Natural Resources are down 57%, while Anglo American’s are down 24%. “There was a debate this time last year about whether mining stocks were in a supercycle or overpriced,” says Hunter. “But problems with China growth have removed the plank in terms of investing.”
Some problems are more company specific. Shares in Aquarius Platinum and Lonmin are down 71% and 47% respectively because of production problems caused by violent strikes at the companies’ South African platinum mines. Similarly, shares in BG Group are down 22% because of a profit warning and those in oil services provider Lamprell, one of the biggest losers, fell 58% after the company issued four profit warnings this year. Meanwhile, shares in train operator FirstGroup also slumped 39% after it lost the West Coast mainline contract.
Picks for next year
So, looking ahead to 2013, where should investors put their money? Beauchamp thinks former stock market darling Tesco, which has seen its shares decline nearly 13% this year, looks attractive. “The market has taken a dislike to it but it could be a good bet, especially now it’s exiting the US,” he says. Certainly, legendary US investor Warren Buffett has built up a stake in Tesco this year.
Meanwhile, Beauchamp also thinks that brave investors could take their lead from this year’s star performers and pick stocks that are currently struggling. “Look for companies that have suffered of late and where a turnaround would help the share price,” he says. “The pub companies may come back a bit, for example.”
However, those who would prefer to snap up more secure businesses could consider Whitbread and Intercontinental Hotels, both of which are performing well, as well as Primark owner Associated British Foods, which is riding out the downturn, and Premier Foods.
Similarly, Richard Hunter believes the mining sector could be set for a rebound in 2013. “Even during the difficulties of this year, new technologies, such as 3D imaging, are enabling companies to get to increasingly difficult places [to find resources],” he argues. “They also continue to throw off a lot of cash. Shell, for example, has a dividend yield of 4.8%.”
Hunter also favours embattled Barclays. Although the banking industry faces many challenges, he thinks the company could receive one of the lower fines for having cooperated quickly with the regulatory authorities over the Libor (interbank lending) scandal. What’s more, it should also benefit from growing business in Africa and reduced exposure to European sovereign debt. “It’s going to be a seminal year for Barclays,” he says.
Meanwhile, if US politicians manage to avert the so-called US ‘fiscal cliff’– where the end of certain tax breaks could effectively wipe 4% off US GDP – this could boost stock market sentiment and mean that money flows back into equities, claims Hunter. “In this low interest environment, investors have got to put their money somewhere,” he says.