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Revealed: top ISA picks of the year…so far

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19/02/2013
ISA investors are erring on the side of caution by ploughing money into big-name brands such as GlaxoSmithKline, BP and Tesco.

According to stockbroker The Share Centre, these three FTSE 100 companies have been the top purchased stocks into an ISA so far this season.

Sheridan Admans, investment research manager at The Share Centre, said: “Global economic issues caused high levels of uncertainty and volatility in the markets in 2012, and although this year has seen an early rally and a more optimistic outlook, it is unsurprising to see investors seeking safer havens.

“Many of the [top selling] companies are also amongst the top income payers of the FTSE 100, suggesting investors may be supplementing a reduction of income from cash savings.

“With interest rates remaining low we expect this trend to continue forcing investors to increase their risk levels in search for higher returns.

“Corporate bonds are usually deemed to be lower risk and are historically the next rung on the ladder for investors looking for income after cash. However, investment grade corporate bonds currently look expensive.”

According to the broker, investors are now more comfortable taking on risk due to actions taken by central banks to support liquidity in the markets, and in particular the comment by the European Central Bank President last year that it will take whatever action in its powers to support the eurozone.

Meanwhile, Admans has picked his top three from customers’ favourites – GlaxoSmithKline, Aviva and BP.

GlaxoSmithKline is a low risk income stock with defensive characteristics which means it is a core holding for many investors. The growth story also looks to be improving. The prospects from the group’s research & development (R&D) are promising and should be a material driver of organic growth. Investors will be pleased to see new drugs coming to the market and the company’s confidence of improving R&D returns to 14%.”

He continued: “Earnings per share growth in 2013 is expected to be 3-4% which is positive for investors. The business is very cash generative and is committed to using this to increase dividends, share buybacks and bolt-on acquisitions. Over the last three years the dividend yield has grown at an annualised rate of 6%.”

BP is slowly managing the Gulf of Mexico incident and investors should look beyond the disaster. The company is restructuring its portfolio to become a more focused oil and gas producer and offers good potential for long term growth. BP has reinstated competitive dividends once again gaining investor’s confidence.

“The continuing effect of divestments means that production in 2013 is still expected to be lower than 2012, despite four major upstream projects due to be productive by the end of the year. However, investors will be pleased to hear new projects are set to increase production, operating cash flow and earnings momentum in the medium to long term.

Aviva is determined to meet its revised strategy to focus on ‘priority markets’ and ‘core activity’, helping to improve its balance sheet and redirect capital to improve profits and value. Selling off its US operation and other non-core parts of the group is an attempt to build reserves that have been impacted by the debt crisis in Europe, where 40% of its operating profits are generated from.

“Investors are buying into a recovery stock so we would advise drip feeding into Aviva. It offers a very attractive yield, however investors should be aware that this has the potential to be cut and should be also comfortable with the majority of exposure to the UK and Europe.”

 Ten most popular equities in ISAs this tax year

Company  Company P/E  Sector P/E  Dividen yield P/E  The Share Centre view
GlaxoSmithKline      15.6    13.5         6.9          BUY 
BP       11.7     10.3         5.4          BUY 
Tesco       10.6     10.7         4.1          HOLD 
Vodafone        9.3     19.1         6.2          BUY 
British American Tobacco       20.5     22.8         4.2          HOLD 
Sainsbury       10.2     10.7         5.1          HOLD 
Aviva         7.1     34.9         7.2          BUY 
AstraZeneca        9.4     13.5         6.4          SELL 
Barclays        n/a     23.3         2.0          BUY 
Royal Dutch Shell        8.1     10.3         5.4          BUY

Source: The Share Centre 

 

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