5 Shares To Beat George Osborne

Published in Investing on 3 December 2012

Pensions are under attack again.

It's that time of year again. Every six months now, with the Budget and the Autumn statement, the financial press speculates on measures that will hit the pockets of the prudent at the expense of the profligate.

This time around the fear is that on Wednesday the Chancellor will either reduce the total tax-free amount that can be contributed into a pension each year from its current £50,000 -- a measure that would hit relatively few -- or else remove higher-rate tax relief on pension contributions altogether. That would hurt many more.

The threats to pension relief could just be political stage-management, but they are plausible. If you're a higher-rate tax-payer planning to make contributions into your pension, it may be worth doing so before Wednesday.

That means moving fast. But online SIPP providers make the process simple and quick. And in any case, whether pension relief is changed or not, it's sensible for most people to save through tax-efficient vehicles such as SIPPs and ISAs.

Instant portfolio

What to invest in? Well here's my pick of five shares to make an instant portfolio. I think it's better than a traditional tracker fund -- I'll explain why later.

Pick 1: Vodafone

The mobile phone operator is in a sector that has taken on the characteristics of a utility -- ownership of a mobile phone is seen by many as a necessity, if not actually a human right. Vodafone's (LSE: VOD) shares yield 6%, thanks to a prodigious cash machine and its booming 45% US associate. It's investing to grow its data and emerging markets revenues, which will support a growing dividend. The share dropped recently after its Southern European businesses were hit by the euro crisis (the sector isn't wholly insensitive to macroeconomics), but for me that created a buying opportunity.

Pick 2: GlaxoSmithKline

GlaxoSmithKline (LSE: GSK) is a well-run company in a classic defensive sector. While pharmaceutical companies generally are struggling with replenishing drug patent pipelines, GSK has used its scale to invest heavily in R&D, while also shrewdly diversifying into over-the-counter medicines and building a strong emerging markets business. Yielding 5.5%, it's also a generous dividend-payer.

Pick 3: Unilever

Consumer staples is another defensive sector. I'm still cautious about the downside risk of the Euro debacle, which puts a defensive bias on my stock-picking. But Unilever (LSE: ULVR) has a strong emerging markets presence which provides a platform for growth: it's better positioned than rival Reckitt Benckiser. On a price-to-earnings (P/E) ratio of 19, it's expensive, but the 3.25% yield makes for a sound long-term investment.

Pick 4: British American Tobacco

Tobacco is another classic defensive sector. Whilst the industry has been slightly on the back foot with the Australian government's measures to enforce the sale of cigarettes in plain packaging, it would be premature to forecast the industry's decline. Again, there is growth in emerging markets, and the industry is investing to develop safer/smokeless products. The hunt for safe dividends has made tobacco stock expensive so British American Tobacco (LSE: BATS) is trading on a P/E of 16, but the yield of 4% is safe.

Pick 5: Royal Dutch Shell

Oil and gas is not a classic defensive sector, but a play on the oil price is no bad thing. Royal Dutch Shell (LSE: RDSB) is a financially strong company with good diversification by geography and product. It has a strong position in liquid natural gas, and is a major player in US shale gas. That business has suffered as prices have been affected by the glut of discoveries, but for me it's a good long-term position. Shell's P/E of 8 and yield of 5% are attractive.

Trackers

Of course, I could make a case for lots of other shares, but I think these are five sound picks and I hope my thought process is informative. Why am I picking individual stocks rather than a tracker? Trackers are fine if you know what you're getting, but they don't necessarily offer the diversification you might expect. For example, a FTSE 100 (UKX) tracker would have half its exposure in just three sectors: oil and gas, mining and banks. That's certainly not a concentration I want at the moment.

So stock-picking can be a safer strategy. If you're looking for ideas on stock-picking, you could do much worse than follow one of the UK's top experts: Neil Woodford, who runs Invesco Perpetual's Income and High Income funds. For nine years, from 2000 to 2008, he outperformed the FTSE All-Share index. And in 2011, his funds returned double the index.

Mr Woodford has substantial holdings in some of the stocks I've mentioned. To find out which, and to discover more of his investing style, you can download this free and newly updated report from the Motley Fool: "8 Shares Held By Britain's Super-Investor". Simply click here, without obligation.

> Tony owns shares in Vodafone, GlaxoSmithKline, Unilever, Reckitt Benckiser, BATS and Shell. The Motley Fool has recommended shares in Vodafone.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

trmeer 04 Dec 2012 , 11:01am

Agree with VOD, GSK and RDSB but it's irresponsible to tell people to buy shares at 19x earnings. There's very little upside and plenty of downside potential at this multiple. What use is a 3.5% yield if your capital falls 20% after some inevitably disappointing results emerge at some point?

joblot123 04 Dec 2012 , 1:29pm

With reference to the above , does Invesco finance this website ?

richjfool 04 Dec 2012 , 2:28pm

The article heading refers to George Osborne, but finishes up with Neil Woodford, I guess he must be the new Chancellor.

Nick Train and I hold Unilever.

davethehunter 04 Dec 2012 , 5:01pm

I've just joined this site a few weeks ago and I was wondering, is Neil Woodward the only investment 'expert' out there?

RomfordDOC 04 Dec 2012 , 8:01pm

There's loads of other experts mentioned on Motley Dave, here's just a few:-

1. Mr Woodford
2. Neil whatshisname from Invesco
3. That bloke with the same name as Edward someone, who married Frank Spencer's screen wife Betty.
4. Etc
5. Etc
6. Oh yes and an old American bloke by the name of......errr Warren Woodford??

ProfessorMarcus 05 Dec 2012 , 1:57am

You don't need to invest in only one tracker though.

You could have a small weighting in the FTSE100 and have trackers covering a variety of other markets.

You could even mix and match stock picking and passive strategies.

It's not a binary choice. I would like an article about asset allocation rather than a vague connection to Woodford.

Even an article detailing Woodford's share selection strategy would be more helpful than a plug for his funds.

TRhere 05 Dec 2012 , 10:48am

Professor Marcus,

I agree with your comments about mixing and matching. There's a 5-part series about asset allocation starting here:

http://www.fool.co.uk/news/investing/2011/05/11/the-most-important-topic-in-investing.aspx

Tony R

jackdaww 05 Dec 2012 , 11:25am

i hold all these five - so nice confirmation bias - but is it also a buffett cheery consensus?

re tracker - i have eleven big ftse100 stocks plus greggs - so its effectivly a ftse100 tracker plus greggs.

the big question for me is how my eleven picks will compare with the ftse100 in say 10 years time.

ProfessorMarcus 05 Dec 2012 , 12:14pm

Thanks Tony I shall take a look.

goodlifer 05 Dec 2012 , 2:42pm

ProfessorMarcus
"I would like an article about asset allocation "

Me too.

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