Brokers go back to basics for this year's share tips

Picking shares to back has never been harder. The technological sure things which stock selectors tipped a year ago now only have one certainty - the smell of burnt investor flesh.

And there is no clear theme to replace these fallen stars. Some brokers have opted for recession-proof 'defensive' shares - stakes in companies such as breweries, tobacco companies or supermarkets whose products always remain in demand.

Others are choosing "consumer cyclicals" - companies such as restaurant chains or general retailers such as department stores, clothing shops or furniture firms, where buying can always be put off if purchasers are hard up. Here the rationale is that these companies are trading on share price levels as low as the worst days of the short-lived Asian crisis in 1998, while expected mortgage rate cuts could have us all scurrying to high street shops.

Brokers HSBC favour "financials" - banks and insurers which should profit from lower interest rates, expected mergers and takeovers, and further cost squeezes. They also like utilities - water, gas and electricity firms. But they're telling clients to downgrade companies in chemicals and other basic industries, engineering, and telecoms.

NatWest Stockbrokers, whose research is largely targeted at private investors, admits there is no one concept this year after plumping for technology in January - and doing rather badly after the dot.com blowout.

However, NatWest research head Jeremy Batstone believes his ten top picks for 2001 have themes in common. "We've opted for stocks with characteristics that should provide a solid base if the present economic uncertainty here and in the US turns into a hard recession. Therefore all our equity picks have to show:

• stability - the ability to produce profits through good and bad times

• robust outlook - companies which are unlikely to be hit by profit downgrades

• earnings momentum - the likelihood that profits will grow year on year." So here's NatWest's naps - and their start 2001 prices.

AB Ports: Britain's largest dockside operation has new management intent on developing the core ports business and selling off peripheral assets. Last year, it raised £154m from sales. And now it is expected to bank a further £100m from disposals. At 366p per share, the company is valued at £1.25bn.

BAE Systems: The hope is for a strong recovery backed by military contracts for the Hawk and Eurofighter aircraft plus benefits from acquisitions. The £37bn order book offers solid backing. BAE is worth £11.5bn at 382p a share.

Berkeley Group: A housebuilder whose ability to grow margins impresses. It scores on urban development skills as well as the low acquisition costs of its landbank. At 755p, Berkeley is valued at £960m.

BG Group: Now focusing on gas exploration and production, there are high hopes of big gas field finds in Egypt and the Caspian Sea. It is one of the purest gas plays. At 262p, BG is worth £9.2bn.

Cobham: Designs and manufactures specialist systems and components for the aerospace and defence industries where the outlook looks firmer than many other areas. A £1.3bn order book inspires confidence. And brokers expect 15% profits growth a year. It has a £1bn value at 1046p per share.

GlaxoSmithKline: A triple barrelled world leader in pharmaceuticals with huge research and marketing muscle. Fans expect to see replacements for Zantac - now off patent - as well as cost savings and 15% annual growth. It's worth £117bn at 1892p.

Marconi: Poor trading results from competitors and the wash from the tech share meltdown have short circuited confidence. But it has transformed itself from a defence industry conglomerate to a company with products ranging from home appliances and satellite communication to medical imaging. At 719p per share, Marconi is worth £20bn.

Mitie: Supplies skilled and unskilled labour through 65 subsidiaries and has notched up 30% annual growth with more to come. Management is highly motivated through shares. At 380p, the group is worth £530m.

Royal Bank of Scotland: Owns NatWest so this tip has to be cleared by lawyers. Cost savings and revenue growth in a sector wracked by competition should bolster earnings increases. At 1582p, the UK's most valuable domestic bank is worth £42.3bn.

Vodafone: With a £150bn market value at 245p per share, the mobile phone operator is the UK's biggest firm. It had a poor 2000 but has little debt compared with rival phone firms and could easily afford to snap up assets from cash-strapped competitors.

But what happened to NatWest's stock picks for 2000? Only one, investment trust 3i, which specialises in venture capital, ended up in positive territory with Dixons picking up the wooden spoon thanks to a slump in value at former subsidiary Freeserve.

But investors who bought all the stocks and sold in March 2000 would have made huge profits. The problem was NatWest went heavily into technology but thought it had avoided difficulties by opting for companies with a proven business model and a real customer base rather than dot.coms which had neither.