National Grid

Utilities stocks are traditionally defensive stocks for investors seeking income, offering lower risk levels and dependable dividends. National Grid is the largest listed utility company in the UK and we have long been fans of the stock.

It is a regulated business with a prospective yield of around 5.4%, combined with a management focused on improving the return on its US operations.

Having settled its pricing structure with regulators in both the US and UK during 2013, the company is now in a much stronger position for the year ahead. Also, whilst political pressures have hit others in the sector, National Grid has not been exposed to this. Another positive for investor is that in March the group announced the dividend will grow in line with inflation from 2014.

William Hill

2014 could be a good year for William Hill as the World Cup encourages more people to place bets. The global appeal of events William Hill cover means it is involved with most major sporting events. Also, the recent acquisition of three sports books in the US, to form William Hill US, offers investors the potential of a great growth opportunity should regulations there be relaxed.

Mobile technology is making gambling more accessible; no longer do you have to walk into high street book makers, which some may have found intimidating. Book makers have also been expanding their services and what they take bets on, appealing to a wider demographic.

While we recognise that William Hill is trading at a current 14.4 time price to earnings, we are optimistic that the attention it has paid to its corporate structure and strategy in various segments of its operation should start to pay off. A fall in the share price since its August results could provide a good entry point.

Aviva

As our recovery pick for the improving global economy, we recommend Aviva for investors seeking exposure to the insurance sector as we hope to see further cost savings, improving cash generation and chance of restoring dividend growth. Investors need to be comfortable with the majority of exposure to the UK and Europe, and some in Asia, and should consider drip feeding in to the stock.

Aviva’s turnaround and delivering on cash flow generation is progressing. The company completed the sale of its US business in October, which is considered an important step in simplifying its operations. There is still a considerable amount to do to help cut costs and rebuild its capital base; however there has been no improvement to underwriting.

The dividend was cut to 5.6p in 2013 from 10p the year previous, yet this is still an attractive yield. The cut was expected and should reduce leverage, increase retained earnings and improve its cover.

Earthport

As the way we pay for services and transfer money changes – becoming more efficient and digital – we recommend Earthport as a stock to consider in 2014.

Earthport is a financial services organisation that focuses on international payments for companies such as IBM, Bank of America and American Express. It allows financial service provider’s customers to send money overseas, more securely, at lower prices, knowing the up-front cost and expected time of arriving.

The company’s last set of results were encouraging and management’s decision to discontinue relationships with clients who did not fully comply with its compliance criteria should strengthen its competitiveness. During 2013 Earthport signed up 21 new customers, including some notable market leaders such as, Bank of America and American Express. Thirteen business went live over the course of the year and its cash burn decreased. Finally it acquired Baydonhill, a foreign currency provider to support its foreign exchange operations.

With a new management team that were introduced in 2010, the company has a great deal of industry experience in either cross-border payments or technology, which is appealing. We recommend Earthport as a ‘buy’ as it attracts high calibre partners and customers, with a platform that has barriers to entry and is scalable.

Incadea

Incadea is an international software and services provider for the automotive retail and wholesale market. It is higher risk, smaller company idea that may interest investors as it establishes itself in a niche market and management highlight potential contract wins ahead.

Like many emerging software companies its product has the advantage of improving performance and efficiency. The company has concentrated on developing into new emerging markets, especially the BRIC markets (Brazil, Russia, India, China), where opportunities are far greater than parts of Europe.

The company has been operating for ten years and management has good experience within the car industry. It has a presence in around 80 countries and 2000 dealerships including BMW, Nissan, Mercedes and VW.