www.smh.com.au

Top10 tips for 2010

For once nobody seems to be predicting the sharemarket will end the year lower than where it began and, as far as I can tell, the experts think it will be way higher. Yet there are good, or maybe I should say bad, arguments for a drop, such as rising interest rates, sluggish growth in the West and financial jitters over which country will go bankrupt first, to name three of the more persuasive.

Mind you, those last two were true of 2009, too, and it turned out all right in the end, up 31 per cent.

For that matter, rising interest rates caused by a strengthening economy haven't proved a handicap, either.

Most vulnerable are small businesses but, by all accounts, they're faring remarkably well.

Then there are the arguments for why the market should rise over 2010.

Well, there are only two of them but they're pretty impressive. One is the boom in China, which has pushed up commodity prices - clearly good for Australia - and the other is that the place is bounding in confidence.

Whatever happens, the market meltdown showed that you can't go wrong with a good blue-chip stock bought on the cheap.

That was even true of the banks, which were the first victims of the global financial crisis and for a while the market's worst performers. They've rebounded the most and aren't considered cheap any more.

So what happens now? Blue-chip stocks have had a good run but the speccies are on the make. In fact, last year's best performers were Biota Holdings (up 658 per cent), PanAust (577 per cent) and Extract Resources (up

548 per cent).

True, the market is expected to rise but we don't want to be caught out again, either.

So I asked some of the share tipsheets for one of each. After all, they need to be right if they're going to keep subscribers, while brokers and fund managers can brush the odd dud aside.

The first five stocks listed are for the long term and considered the best value. Incidentally, Woolworths, Prime Infrastructure and - gasp - Telstra were the companies most frequently nominated.

There are no banks in the tipsters' first five, which sure is a sign of the times. The last five, beginning with Servcorp, are more speculative but considered 2010's most likely.

1. BHP Billiton

You shouldn't be buying a stock until you've first considered BHP Billiton. It's the benchmark against all others, especially while we're in a resources price boom.

The only competition is Rio Tinto but, for the most part, BHP is blessed with bigger holes, and more of them.

"It has leverage to China and it's diversified," says Fat Prophets analyst Colin Whitehead.

You don't even have to be a true believer in the China story, either.

BHP makes mega profits (about $2.50 a share), has a balance sheet to die for, virtually no debt and if not a near monopoly then, at worst, is an oligopoly in major metals and minerals.

Forget commodity prices or the exchange rate. All it has to do is keep on producing.

2. Telstra

You wouldn't credit it but Telstra has become quite the stock these days. Not only was it nominated by Jamie Nemtsas of The Investing Times but several brokers rate it a buy and none call it a sell.

The Future Fund might be selling but some fund managers have been quietly building stakes in Telstra.

Why would they do that?

Nemtsas says it's paying a 12 per cent dividend after franking credits are taken into account, which is a pretty good reason for a start.

"It should do a 10 per cent capital gain from $3.30 as well," he says.

Telstra has been portrayed as a victim of the national broadband network but, the way things are going, it looks like the Government will need it to get the thing up and running. So Telstra could be in a better bargaining position when it comes to offloading its copper network - which has a limited life anyway - than the market thinks.

Hmm, we'll see. But surely there can't be any more downside left in the share price.

3. Woolworths

"Woolworths manages consistently year on year to grow earnings, yet the share price hasn't kept up," says Elio D'Amato of Lincoln Indicators.

There's not much more to be said, really.

A highly successful retailer that always seems to be one step ahead of rivals Coles and Kmart. Even though its price may not have kept up with profits, it's high enough for the dividend yield to be a bit low.

But then the dividend will increase over time, so problem solved.

4. Prime Infrastructure

The remnants of the old Babcock & Brown Infrastructure, Prime Infrastructure wasn't the place to be before its capital reconstruction on November 20, which in effect was a 1 for 15,000 share swap, leaving most shareholders with next to nothing.

It won the wooden spoon in 2009 as the worst stock in the ASX200, plunging 99 per cent. But let bygones be bygones. It's a different story for newcomers.

"It has very good assets and is reasonably well capitalised. I'd expect very good distributions for a long time," says Steve Johnson of Intelligent Investor.

It's also backed by the Rivkin Report, which says the market's negativity over a nasty stamp duty bill worth 20 cents a share could be "a catalyst to jump on board" below $3.85.

Prime Infrastructure owns the world's biggest coal export terminal at Dalrymple Bay, runs WestNet rail infrastructure in the south-west of Western Australia and has a portfolio of ports in Europe and China.

It is also a big energy player, holding just over one-quarter of National Gas Pipeline Company of America, one of the largest natural gas suppliers in the US; 42 per cent of Powerco, the second-biggest gas and electricity distributor in New Zealand; a portfolio of natural gas and electricity distributors in Britain; and it owns outright Tas Gas, the only natural gas distributor in Tasmania.

5. Tabcorp

It owns Star City and Conrad Jupiters casinos as well as the TAB but Tabcorp's share price has never recovered from Victoria's decision to take away its pokies monopoly in 2012.

Which is why the Rivkin Report likes it.

"It's another of those blue-chip stocks that fits into the laggard category: the market rallied some 30 per cent last year, while Tabcorp returned almost nothing," says Rivkin's Kristian Dibble. He says Tabcorp will tender for the pokies licence and, besides, "it can use its balance sheet more aggressively to source new revenue streams such as its rumoured joint-venture talks with Coles".

But even if the "Victorian gaming earnings are not replaced by other income streams, Tabcorp is still good value", Dibble says, because of the large fully franked dividends.

6. Servcorp

It's not quite blue chip but then Servcorp is safer than a speccy.

After all, it doubled its profits and revenues in the past four years from its business of supplying serviced and virtual offices to small businesses in Australia, China, Japan, France, the Middle East and South-East Asia and is expanding into Britain and the US.

Servcorp is cashed up after a recent capital raising and has been grabbing office space in the US at rock-bottom rents.

"It has an extremely large rollout program at attractive rates," Johnson says.

Broker Intersuisse points out its virtual office rollout is even more profitable than its serviced offices and it gains from more work being done online and the likely rise in travel costs when carbon emission controls start.

"We see this as an excellent time to buy internet-related global growth with proven management," the broker says.

7. Asciano

Asciano was split from Toll two years ago and owns Pacific National, which freights coal, wheat, steel and just about anything else that isn't iron ore and owns Patrick, which dominates the container ports.

And trade volumes are picking up.

"It had a near-death experience, which has put a lot off it," Nemtsas says.

"There's no debt maturing for three years and it's winning good contracts. It's better now than it ever was. For a speculative stock the question is whether it can double in 12 months. The answer is yes."

You'd want to hope so - it hasn't paid a dividend for 18 months.

8. Geodynamics

Here's a renewable energy stock to get your hot rocks off.

Geodynamics may well have enough hot rocks under the ground in the Cooper Basin and Hunter Valley to light up the whole country, not to mention make a fortune from carbon credits when the emissions trading scheme gets up.

Since they're radioactive, you wouldn't want to dig these rocks up. But Geodynamics plans on generating electricity by pumping water into the ground and letting the steam drive the turbines.

"It's low-cost, clean and doesn't use fossil fuels," Whitehead says.

But neither does it make money and it's still drilling wells.

9. Brickworks

Australia's biggest brickmaker, Brickworks, is considered speculative by the Rivkin Report but is arguably blue chip.

The stock is a Siamese twin to Washington Soul Pattinson since they own large slabs of each other.

And that's its appeal.

Dibble says that, unusually, its price has lagged Soul's because of an overhang of stock from its recent share-purchase plan.

"Brickworks is a long-standing, conservatively managed company with exposure to the building industry so buying at current levels allows you to buy shares at an attractive price."

10. Entek Energy

This is really getting speccy.

Entek Energy is an oil and gas explorer in south west Queensland and the Gulf of Mexico.

More to the point, says D'Amato, it's also producing.

Entek is earning revenue, makes a modest profit, has good prospects and no debt.

"The company is in a position to conservatively double its reserves, production and revenue in 2010," Entek's chief executive, Russell Brimage, said last week.

THE PANEL

COLIN WHITEHEAD,

Fat Prophets

Long Term: BHP Billiton

This year: Geodynamics

ELIO D'AMATO,

Lincoln Indicators

Long Term: Woolworths

This year: Entek Energy

JAMIE NEMTSAS,

The Investing Times

Long Term: Telstra

This year: Asciano

STEVE JOHNSON,

Intelligent Investor

Long Term: Prime Infrastructure

This year: Servcorp

KRISTIAN DIBBLE,

Rivkin Report

Long Term: Tabcorp

This year: Brickworks