Expert Stock Picks: Blue-Chip Best Buys

Published in Investing on 26 March 2012

We spotlight some of the best blue-chip ideas from top professional stockpickers.

This month, we make our third visit to the FTSE 100, looking for superior blue-chip prospects favoured by our 'Expert Eight' stockpickers.

Our pro pickers generally take a medium- to long-term view on their investments, but let's have a quick look at the early performance of the companies we've highlighted so far.

CompanyHighlighted share priceGain/(loss) (%)FTSE 100 gain/(loss) (%)
BG Group (LSE: BG)1,252p19.210.7
Rio Tinto (LSE: RIO)3,389p(0.2)10.7
Smiths Group (LSE: SMIN)965p5.710.7
Rio Tinto (LSE: RIO)3,096p9.38.0
Lloyds Banking Group (LSE: LLOY)23.6p52.38.0
Average 17.39.6

The Footsie has seen a strong recovery since the major hiccup in August last year. The market as a whole has become more expensive, and some investors are starting to worry about how much further the current bull run can go.

Are our Expert Eight still finding shares to buy with the Footsie riding high?

Tesco or not Tesco, that is the question

Tesco (LSE: TSCO) dominated the headlines when retailers released their traditional Christmas trading updates in January. The UK's biggest supermarket chain announced disappointing figures and warned of minimal profit growth this year and next.

I can't recall another piece of company news that has so polarised buying and selling among top investors. As my Foolish colleague Maynard Payton reported, Warren Buffett accumulated Tesco shares as fast as Neil Woodford disposed of them.

Among our Expert Eight, one manager who had sold his holding in the second half of 2011 repurchased the stock at a lower price in January. Meanwhile, another manager who had bought the stock in the second half of 2011 dumped it in January in the belief that "Tesco has a lot of work to do before it is again a reliable growth business".

Top 10s

A lack of consensus among our Expert Eight -- not just in the case of Tesco, but generally -- has been a feature of the opening months of 2012.

This quarter, just four blue chips figure in the top 10 holdings of more than one manager, compared to seven last quarter and six the quarter before. The four are:

CompanyNo. of managers holding
BG Group (LSE: BG)2
British American Tobacco (LSE: BATS)2
Diageo (LSE: DGE)2
Xstrata (LSE: XTA)2

BG Group, British American Tobacco and Diageo were in the table last quarter. Xstrata, a riser on the announcement of a proposed merger with Glencore (LSE: GLEN) in early February, is a new entrant.

Meanwhile, Sage (LSE: SGE) and Unilever (LSE: ULVR) (newcomers last quarter on share price strength) and Rio Tinto and Royal Dutch Shell (LSE: RDSB) (previously established top 10ers) have slipped out of the table -- but only the last-named as a result of a confirmed total disposal by one of our managers.

Blue-chip buying

When it comes to recent blue-chip buying, our stockpickers have been ploughing their own furrows, with little common ground between them.

Single-manager buys that have caught my eye include microchip designer ARM Holdings (LSE: ARM), telecoms giant BT Group (LSE: BT-A) and electronic inter-dealer broker ICAP (LSE: IAP). However, the shares of all three have subsequently risen -- strongly in the cases of BT and ICAP.

So, the blue chips I would highlight as being of particular interest to investors today are:

1. British Sky Broadcasting (692p)

Mark Slater (Slater Growth and Slater Recovery) was a buyer of BSkyB (LSE: BSY) in July last year when the shares plummeted after News Corporation withdrew its bid to take over the satellite broadcaster following the News of the World phone-hacking scandal. BSkyB's lowest closing price in that tumultuous week was 696p, although it did go lower within the day on the date of the announcement.

The current price is 692p and the valuation is little changed since Slater said in the wake of BSkyB's recent interim results: "Trading on a PEG of slightly less than 1, with a P/E of 13.3, likely earnings growth of 15% and a healthy dividend yield, the shares are attractive."

2. Carnival (2,013p)

Veteran blue-chip stockpicker Richard Buxton (Schroder UK Alpha Plus) had earmarked cruise-ship operator Carnival (LSE: CCL) as a company that could surprise on the upside in 2012 -- but that was before the tragic capsize of the Costa Concordia off the Italian coast in mid-January.

Buxton had previously been a big buyer of Carnival when the shares were way north of the current price. He added to his holding following the Costa Concordia disaster on the basis that "history suggests … these events have a one or two-year impact" and his belief in Carnival's longer-term prospects. The company's shares traded above 3,000p little more than a year ago.

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apprenticeDRL 26 Mar 2012 , 8:31pm

I may be missing something and apologise if I am being stupid but in your first table RIO appear twice with different performances.

M0byDick 26 Mar 2012 , 9:47pm

@apprenticeDRL -- yes, sorry that's a bit confusing for anyone who hasn't been following the series.
RIO was highlighted at 3,389p in September
Then in December: "Rio Tinto is down quite a lot – in fact, far enough, at getting on for 10%, to make the big miner well worth highlighting again [at 3,096p] this quarter"
A cheap company got even cheaper and as Warren Buffett says "When hamburgers go down in price, we sing the Hallelujah Chorus" :)
Foolish best
MobyDick (G A Chester - article author)

wellington101 26 Mar 2012 , 11:20pm

Holding Unilever and Glencore, Tesco's. Blue chips old and new!
Viterra and Xstrata make Glencore exciting and aggresive.
IPO over subscribed in Thailand for Tesco's shows their not so old and slow. Unilever makes the dividend important, as they are also big in Thailand. With India and China growing 2 billion + a big market to aim at.

Have fun and make money!

HstG 27 Mar 2012 , 3:51pm

I feel a bit like AprenticeDRL when reading Wellington's stream of consciousness - could not make head nor tail of it...

jaizan 28 Mar 2012 , 10:20pm

Why do the "expert 8" get an "expert" tag?

Objectively, to be merely paid 1.5% or similar to manage other peoples money isn't sufficient to earn an expert tag. Long term out performance IS the only way to get such accolades.
Anyone who manages money professionally, without outperforming is merely a specialist, rather than an expert.
Apologies if I have missed the answers to this question previously.

LateDeveloper 30 Mar 2012 , 1:31pm

I have Tesco but given they are still in the doldrums, feel they will pick up before long, since that is mainly because of the Christmas figures released. They are a global player, so the Christmas period does not mean as much to them as say someone more local like Morrisons.
I agree with wellington101 Unilever will probably do well, and I am betting on Imperial tobacco (IMT) shares doing well, either out of a pick up in other countries, or a possible buyout by one of the other leading contenders.

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