Brokers pick their best stocks for year ahead

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SHARE OUTLOOK: The year looks anything but predictable with a lot riding on the strength of the economic recovery here and overseas and the fortunes of the dollar.

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The country's leading sharebrokers have picked a diverse range of stocks they expect to perform well in 2010 with little cross-over.

They are unlikely all to be right. The year looks anything but predictable with a lot riding on the strength of the economic recovery here and overseas and the fortunes of the dollar.

BusinessDay spoke with four brokers who see gains from defensive shares, companies whose fortunes should start to turn and are coming off record low share prices after big injections of capital, and those expected to benefit from a recovering economy.

Forsyth Barr's five stocks for 2010 are defensive utility stocks Auckland International Airport and electricity company Contact Energy, rural services firm PGG Wrightson, wine grower and exporter Delegat's and Sir Ron Brierley's global investment firm Guinness Peat Group.

Forsyth Barr head of research Rob Mercer said Auckland Airport and Contact had been the two worst performing utilities in the past two years. Auckland Airport should start to see the results of five years of capital spending and expansion in its retail offering as well as a steady increase in tourism flows continuing into 2011.

Forsyth Barr was targeting a 20 per cent return including dividends and appreciation for the country's largest airport but that would be partly contingent on a moderate depreciation in the New Zealand dollar, about 10 per cent or a little more.

Mercer said Contact was the utility with the biggest discount – about 20 per cent – to Forsyth Barr's valuation. Anything that could have gone wrong did go wrong for Contact in 2009 but a better performance was expected this year, he said.

PGG Wrightson was a higher-risk pick and could possibly return 50 per cent this year but it depended on whether the company could get advantage from a fall in the dollar and a resurgence in dairy prices.

Delegat's had been a top performer for the past two years. Its stalwart brand, Oyster Bay, had not suffered from the glut of wine and a slump in wine prices. If it could keep this up – and its price to earnings ratio of less than 10 indicated investors were sceptical – there was substantial gains to be had as demand returned to the global wine market.

Mercer said in Forsyth Barr's view, global sharemarkets were trading at a discount. Guinness Peat Group, with its portfolio of global investments should benefit from rising markets.

Christchurch sharebroker Hamilton Hindin Greene likes insurer Tower, Fletcher Building, hi-tech manufacturer Rakon, explorer New Zealand Oil and Gas and finance and investment firm Pyne Gould Corporation.

Hamilton Hindin Greene partner Grant Williamson said Tower was undervalued and was continuing to grow its earnings.

Tower is the only stock chosen twice.

First NZ Capital also picks this stock this year with head of research Robert Bode saying it expects Tower's margins to keep rising and it to benefit from industry consolidation.

Williamson said Fletcher Building should benefit from the economic recovery and higher infrastructure spending. Rakon was well positioned for recovery while New Zealand Oil and Gas would see gains from the Kupe gasfield startup and was embarking on an aggressive drilling programme.

With a new capital injection, Pyne Gould Corporation was on a stable foundation and likely to be one of a handful of finance companies in the market and a good recovery prospect.

Craig Investment Partners five picks are Ryman Healthcare, Fisher & Paykel Healthcare, Templeton Emerging Markets, Sky City and Freightways.

CIP said aged-care provider Ryman had an excellent business model and had produced defensive growing earnings throughout the downturn.

Healthcare manufacturer Fisher & Paykel Healthcare had growth potential and would gain from any decline in the dollar.

Templeton Emerging Markets offered exposure to growth opportunities in Asia, particularly in China and Brazil.

CIP said that after a rights issue this year, casino operator SkyCity had reduced its financial risk and was on a solid footing.

Freight-forwarder Freightways was a well-managed and cyclical business set to gain from an economic recovery as well.

Williamson said there were still a lot of question marks about the coming year. Interest rates were likely to rise throughout 2010.

As long as there were no upsets overseas, investors would continue to invest in the New Zealand and Australian dollars.

AT A GLANCE:

FORSYTH BARR: Auckland International Airport, Contact Energy, PGG Wrightson, Delegat's, Guinness Peat Group.

HAMILTON HINDIN GREENE: Tower, Fletcher Building, Rakon, New Zealand Oil and Gas, Pyne Gould Corporation.

FIRST NZ CAPITAL: Nuplex, Opus International Consultants, Restaurant Brands, Tower, The Warehouse.

CRAIGS INVESTMENT PARTNERS: Ryman, Fisher and Paykel Healthcare, Templeton Emerging Markets, SkyCity, Freightways.

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