MIDAS: Top tips for a year of living on the edge

By JOANNE HART
Updated: 17:22 EST, 2 January 2010

Predicting the mood of the stock market is never easy, but this year there seem to be even more potential wild cards than usual. The timing and strength of the economic recovery remains a complete unknown, particularly as unemployment remains high, taxes are likely to rise this year and there is a General Election.

Shares rose sharply last year in anticipation of recovery - so will they continue to gain ground in 2010 or will they lose their lustre?

To try to mitigate the uncertainties of the coming year, Midas's top tips for 2010 cover a broad spectrum from the established and traditional to the young and inventive.

Full steam ahead: Babcock chief executive Peter Rogers says orders at the firm, which maintains submarines, have risen 90 per cent

Babock
(Ticker: BAB; main market)

The largest and most established of this year's picks is Babcock International, which opened for business in the UK in 1891 and has been involved in top-flight engineering ever since.

The company is mainly involved in complex projects needing a high degree of expertise, such as nuclear decommissioning or submarine maintenance. About half of Babcock's revenues come from the marine sector.

Babcock's customers also include the Ministry of Defence and Network Rail, as well as Britain's airports, where it designs baggage handling systems and provides routine maintenance and round-the-clock support should anything go wrong.

In the year to March 2009, the company-delivered pre-tax profits of £121 million, a 27 per cent increase. The dividend rose 25 per cent to 14.4p and chief executive Peter Rogers said the order book was up 90 per cent to £5.7 billion.

Midas verdict: Babcock had some problems a while back with its rail division and this blighted the share price. More recently there have been worries that the company may suffer if the Government cuts defence spending. These fears seem overplayed. Babcock is a strong business with good prospects. At 596p, the shares are cheap. Buy.

Marston's
(Ticker: MARS; main market)

Marston's has also been around a long time, tracing its roots to the 1890s, when it was known as Wolverhampton & Dudley Breweries. The group changed its name three years ago to reflect the fact that it had evolved from a Midlands beer-maker to the UK's leading independent brewing and pub business, with nearly 2,200 pubs and five breweries.

Marston's prides itself on ales such as Banks's, Brakspear, Hobgoblin and Marston's itself, but there is also a clear strategy to develop the pubs, focusing on friendly, well-managed sites offering a wide range of beers and good value food.

Chief executive Ralph Findlay recently raised £165 million in a rights issue, primarily to build 60 new pubs over the next three years, with 15 scheduled to open in 2010. Results to October 3, 2009 were affected by economic conditions and profits fell 13.5 per cent to £70.3 million, but they were still better than expected. Marston's is forecast to deliver profits of nearly £74 million this year and £82 million next.

Midas verdict: Marston's shares are trading at 88p, but brokers believe they should rise to about 120p. The management is extremely focused and the company should benefit from economic recovery and its own expansion programme.

Marston's is expected to pay a dividend of about 5.8p this year, which puts the shares on a generous 6.6 per cent yield. Buy.

Domino Printing Sciences
(Ticker: DNO; main market)

Domino Printing Sciences is a printing business with a difference. It makes and maintains the machines that enable companies to print barcodes and other data on their products, ranging from simple 'best before' information to intricate facts about precisely where, when and how a product was made.

Half of Domino's customers are involved in the food and drinks industries, but the group also supplies drugs companies, engineering firms, car manufacturers and builders' merchants.

The company operates all over the world and its biggest market is China, one of the fastest-growing economies.

Revenues to October 31, 2009 were one per cent ahead at £256 million, marking Domino's 31st consecutive year of revenue growth. The company also undertook a cost-cutting programme to improve efficiency and profits rose 11 per cent to £28 million while the dividend increased ten per cent to 13.02p.

Midas verdict: Domino makes money from selling new equipment and maintaining existing machines. Last year, fewer customers bought new equipment, hence the limited sales growth. However, in 2010 and beyond, sales should be stronger. Governments here and overseas are increasingly keen to label goods so that it is clear exactly where they came from, how they were made and whether they are real or counterfeit.

Domino's provides the technology that enables companies to do just that. The shares are 329.3p but should reward patient investors. Buy.

FuturaGene
(Ticker: FGN; Aim)

FuturaGene is developing ways to make trees grow faster and thicker and other plants more resistant to cold and drought. The company can bulk out trees such as poplar and eucalyptus by as much as ten per cent and recently signed a licence agreement with leading agrochemical company Bayer.

Poplar is widely used in power stations so if it can be made to grow more productively, it can replace a proportion of the coal that is currently used, thereby helping the environment. Eucalyptus is used to make paper, so developing its growth potential is also extremely beneficial.

FuturaGene will not be profitable for another two to three years but it recently raised £6 million in a fundraising so it has enough money to finance research for a while.

Midas verdict: FuturaGene is a risky investment, but if its technology works, the stock could soar. Currently at 70p, the shares make an exciting punt for the adventurous investor. Buy.