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JP Morgan lists its ‘not racy’ UK stock picks

Investors punting on the British stock market should eye the "not particularly racy industries" of textile cleaning, corrugated packaging and cable products, according to the U.K.'s J.P. Morgan Cazenove.

Berendsen, a FTSE 250-listed textile cleaning provider, was the investment bank's top pick to outperform over the next year, out of all U.K. small- and mid-cap companies.

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Other top contenders were packaging business DS Smith, and HellermanTyton, which supplies cable management tools. Joinery and kitchen part manufacturer Howden Joinery and construction company Interserve were also on the bank's list of firms to watch.

"There is a bit of a theme here in not particularly racy industries," Alex Mees, an equity analyst at J.P Morgan Cazenove, told CNBC on Friday.

The companies he named are all listed on the FTSE 250 index tracking the 101st to 350th biggest companies by market capitalization on the London Stock Exchange. The largest U.K. companies are listed on the better-known FTSE 100.

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"These are companies that we think have internally generated opportunities to surprise people," said Mees.

"In our experience, this is where you can make money out of the mid-caps. Generally finding opportunities where people think 'we understand this business', where perhaps they don't."

Simon Dawson | Bloomberg | Getty Images

He conceded that share prices for small- and mid-cap companies tended to be more volatile, and that investors often took a "sell first, as questions later" approach to the stocks.

Official statistics showed on Friday that the U.K. economy continued to expand solidly between April and June this year. The country's economy is now 0.2 percent larger than it was at its peak prior to the 2008 global financial crisis.

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"If economic growth continues to strengthen, we are going to move past the 2008 numbers. As that occurs there will be an increasing risk appetite and as investors look for more opportunities to make money, they are going to dig deeper," said Mees.

Disclosure: Mees does not own shares in Berendsen, DS Smith, Hellermann Tyton, Howden Joinery or Interserve.

—By CNBC's Katy Barnato

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