There was a school of thought that said 2016 should have been put out of its misery well before 31 December rolled around.
A parade of much-liked people dying and a series of political shocks, along with the usual run of disasters and upsets, might have led us to expect a share price slump, but quite the reverse happened.
It’s a cliche – and true enough – that stock markets hate uncertainty, which is one possible explanation for why investors shrugged off the shock of Brexit and the even bigger shock of a Donald Trump presidency. At least there was an element of knowing where we stood, in the near term at least.
In a volatile 12 months, the FTSE 100 slumped to three-and-a-half-year lows in February on fears of a global economic slowdown, recovered, then fell sharply but briefly following the EU referendum vote, before hitting new heights as a drop in the pound boosted the index’s overseas earners and a rise in oil prices lifted commodity companies. It finally ended the year at a record 7,142, up 14.4%.
Which makes the poor performance of our own picks for the year all the more disappointing. Our 10 tips between them lost 12.3%.
The biggest loser was my own choice, Restaurant Group, which was hit by falling consumer confidence, as well as its own questionable decisions, including removing the most popular items from its Frankie & Benny’s menus.
We were also heavily exposed to retailers, which have come under pressure following the Brexit vote on concerns about a squeeze on consumer spending. But one at least performed well, with Poundland being sold to South Africa’s Steinhoff at a premium to our starting price. And the advertising giant WPP was the star performer, up 16%.
Undaunted, here are our predictions for what is likely to be another tricky year, as Brexit rumbles on, Donald Trump takes over in the US and France and Germany face key elections:
Flybe
A dose of reality has returned to airline prices lately after the likes of the BA owner IAG and easyJet once soared. One airline afflicted with too much reality since its laughably high initial valuation is Flybe. A “turnaround plan” looked more like a 360 backwards loop. But fans of a dead cat bounce might like to gamble on an airline with shares at just 44p. Under new management, it could revive slightly if air passenger duty is cut, and may get more subsidised domestic routes if it can stay in business. Gwyn Topham
Diageo
The share price of the Smirnoff, Baileys and Johnnie Walker drinks company Diageo is already up on a upward trajectory as a result of the 23 June referendum. Sterling’s 17% slump against the dollar flatters its earning power as just 10% of its revenue is generated in the UK. The US is around half the market for the company. Hence the rally since the vote to leave the EU. It might still be one to watch in 2017 at £21.10; some analysts have pointed out that alcohol sales might be resilient in these uncertain times and as of June, according to the Female FTSE board report produced by Cranfield, it has the highest gender balance of any major stock market listed company. Jill Treanor
Tesco
Tipping a supermarket when economists are predicting the UK is heading for economic slowdown and a significant rise in inflation, in a market where price competition is tough, might seem foolhardy. But Tesco is in recovery mode. More than two years after it was battered by an accounting scandal and five years after it started losing customers rapidly to lower priced discounters like Aldi and Lidl, there are signs it is on the mend. Dave Lewis, the chief executive hired in from Unilever, has improved sales and customer service, and boosted shelf availability. The grocer appears to have what all businesses seek: forward momentum. Tesco sales were up 1.6% in the 12 weeks to 4 December versus 2015. Its market share has climbed from 28% to 28.3% in a year; this may sound small but in the £130bn grocery market that is a substantial gain, especially when it is opening very few new stores. Tesco shares performed well last year – rising from 142p to 207p – but they could have further to go. Julia Finch
Randgold Resources
Chaos and uncertainty are usually good for gold and only an optimist would bet on smooth sailing for the global economy during 2017. The Côte d’Ivoire and Mali-focused gold miner Randgold Resources has been on a downward run since last summer although it picked up towards the end of 2016 as gold recovered. The company’s prospects have recently been upgraded by investment banks including Citigroup and Morgan Stanley and the stock is looking pretty cheap at £64.15 after its six-month losing streak. Its management team is stable and experienced, so they are unlikely to spring any unpleasant surprises. Rob Davies
Ted Baker
The fashion retailer’s shares, now £28.14, are down 13% on the start of 2016 after taking a thrashing after the Brexit vote on fears of cost inflation and consumer confidence. It is likely to be subject to cost increases as a result of a fall in the value of the pound against the dollar in which it sources clothing abroad. But it has a natural hedge against that thanks to a growing overseas business, which will be now be boosted by the currency changes. Meanwhile British shoppers have so far proved resilient and the winter season is likely to have gone better for all clothing retailers as more normal weather conditions have prevailed after two years of unseasonable warmth. . The UK market will get tougher in 2017 but this is a well-run business with a growing international profile that is likely to help it continue to grow in a tough climate. Sarah Butler
Associated British Foods
Shares in Associated British Foods have fallen from their 2016 peak, on concerns about a slowdown at its discount retailer Primark and the outlook for its sugar business. But a recent update reassured investors, with Primark’s expansion continuing and sugar recovering as prices move higher and cost-cutting benefits start to take hold. There are concerns about the effects of the weak pound on Primark’s products sourced from abroad but opening 1.3m square feet of new store space next year should still help to fuel growth, although margins are expected to come under pressure. Even so, the shares at £27.45 could have further to rise. Nick Fletcher
Dairy Crest
After selling its milk business at the end of 2015, Dairy Crest is free to focus on developing its specialist brands and expanding overseas. The company owns Cathedral City cheese, Clover margarine, and is selling demineralised whey into China for use in baby food. The milk business was barely profitable so Dairy Crest can now spend more on marketing and widening the range of products it sells. In 2017 it could also benefit from price inflation and the fall in the value of sterling helping the overseas business by making sales more valuable. The share price fell slightly in 2016 and looks decent value at 619.5p. Graham Ruddick
ConvaTec Group
Analysts at UBS, Goldman Sachs, JP Morgan Cazenove and Deutsche Bank are all glowing about the prospects for the shares in medical supplies firm ConvaTec Group – but let’s not hold that against the company. The City’s professional scribblers may have almost as bad a track record when it comes to picking stockmarket winners as anybody else, but ConvaTec only floated in October at 225p, shot into the FTSE 100 in December and closed the year at 233.9p. So the firm is new enough to be receiving unconditional support from the Square Mile’s cheerleaders for a bit yet. Simon Goodley
Card Factory
With 2017 expected to be a tough year for retailers, the no frills greeting card firm Card Factory has some admirable qualities. The Yorkshire business operates squarely in the value end of the market, focusing on cards costing less than £1. It is also vertically integrated, with greeting cards rolling off the presses at its printworks in Shipley. Demand for its products is fairly predictable as birthdays come round every year, and the internet has not wreaked as much havoc as in other retail sub-sectors. The share price was down nearly 30% in 2016 to 253p as weak high street footfall and the Brexit vote hit sentiment, but this is a cash-generative retailer which pays generous dividends. Zoe Wood
Shire
After an acquisition spree, Shire, which is listed in London, based in Dublin and run from Boston, is one of the main pharma players globally focusing on treatments for rare diseases and specialised conditions such as haemophilia. Following the $32bn takeover of US firm Baxalta, Shire chief executive Flemming Ørnskov is targeting $20bn in annual revenues by 2020. Risks include pressure on drug pricing in the US, but Shire’s new dry eye drop Xiidra has had a strong launch there and it has a good pipeline of new products. It is also a clear winner from the weak pound and compared with rivals its shares look cheap at £46.84. Julia Kollewe
