The next year is likely to bring a period of tepid growth for businesses, and investors should stick to defensive plays even though they are not that sexy, Barry Dixon, head of research at Irish wealth management company Davy, told CNBC.
Dixon urged investors to focus on companies with “strong fundamentals in terms of balance sheets, cash flows, and that are essentially cheap (to run).”
He rejected suggestions that the stock prices of such firms tend to be high, urging investors to look at companies with strong fundamental positions in existing and emerging markets.
One example of a firm “not in the sexy end of the (stock sector) world” is Irish insulation producer Kingspan , which has gained strong market positions in the U.K., U.S., and Australia.
“Kingspan is a fantastic way of playing the green agenda; they’ve started from a small Irish company 30 years ago to being what is effectively a global player now on the insulation market,” he explained. “There’s no global leader in insulation at the moment and it’s a hugely important area driven by regulation.”
Dixon pointed to India as a growth market where insulation products are used to protect perishable items from heat. Rising energy costs in European markets have boosted insulation product sales, as well.
Betting on Sport
Bookmakers could be a good bet for investors in 2012 due to a number of sporting events taking place over the summer, Dixon said.
U.K.-based bookmaker William Hill is particularly attractive due to significant investment in their online industry and relatively low overheads, Dixon said.
“Everybody thinks that the retail bookies in the U.K. are dead, and they’re saying that 60 percent of their customer base is over the age of 40, so they’re literally dying off,” Dixon said.
However, he added that up to 50 percent of William Hill’s revenue comes from gambling machines, and betting on soccer was particularly popular among the 18-to-35 year-old group. With the Olympics and the European Soccer Championship tournaments taking place over the summer, bookmakers are likely to cash in.
“If you look at the demographics of the people who are playing the machines and are betting on (soccer), it’s the 18 to 35 year olds ... so the bookies are bringing back in that young demographic,” Dixon said.
He added that William Hill shops made around £80,000 ($126,727) per year and less than £10,000 ($15,838) per year was spent on maintenance and investors could expect a cash flow yield of 10 percent.
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Disclosures:
Davy Wealth Management is long Kingspan; Davy Wealth Management is long William Hill.
Correction: A previous version of this story incorrectly stated that the soccer World Cup takes place this year.