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jamieclawhorn · 8 years ago

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3 top picks for a 2017 starter portfolio

I’m often asked what shares a beginner should go for, and I always answer the same way — solid shares that should perform well over decades, with some diversification. Here are three that have been down in the dumps that I reckon are coming back strongly.

Oil forever

Oil is back up to around $55 per barrel today. That’s way down on its pre-slump peak, but it’s making a lot of companies look very profitable again. BP (LSE: BP) is forecast to more than double its earnings per share (EPS) in 2017, and that should hopefully be the start of a solid upwards run. On current predictions, BP’s P/E ratio would drop as low as 12.5 in 2018, and that’s below the FTSE 100‘s long-term average of around 14. And BP looks set to pay out dividend yields of 6% or so, which is way better than average.

BP’s share price has climbed by 53% in the past 12 months, to around 502p, but surely it’s done badly during the downturn? Well, actually, over five years the shares have gained a modest 8%, but on top of that you’d have had around another 27% in dividends (which would have compounded even further had you reinvested the cash when the shares were cheap).

If BP can net you a 35% gain, or more, during the toughest of times, don’t you think it could pep up your portfolio over the next decade and more? I do.

Solid insurance

My second pick is also good on dividends. It’s Aviva (LSE: AV), and analysts are expecting yields of better than 5%. The shares suffered during the financial crisis, and the company was forced to offload much of its bloat and slash its dividend.

But since then, it has turned itself round and become a pretty lean and cash-efficient operation. At the halfway stage in 2016, chief executive Mark Wilson said: “Aviva’s strong financial position and diversity mean we are well insulated from external events… We remain confident in our ability to deliver on our key commitments to grow earnings, cash and dividends.“

Forecasts put the shares on a low P/E of under 10, dividends are rising, the company boasts a powerful solvency ratio of 174%, and it reckons Brexit will have no real impact on it. That sounds good to me.

Big pharma

Turning to another recovery, I bring you pharmaceuticals giant AstraZeneca (LSE: AZN). In this case the calamity came from the expiry of some key drug patents and the resulting increased competition from generic alternatives. That hit profits and since May 2014 we’ve seen the share price fall by nearly 39% to 4,573p — though it’s still up 20% over five years and dividends have been strong.

The driver of change for AstraZeneca is Pascal Soriot, who tool the helm in 2012 with a plan to offload lots of non-core business, focus on what the firm does best, and get its drug development pipeline up to top speed. That was always going to take time and we’re likely to see earnings drop again this year.

But there’s a return to EPS growth on the cards for 2018 with a 12% rise predicted. And I reckon when we actually see that happen, the shares should move upwards. I think now is a great time to put away some AstraZeneca shares for the years ahead.

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