Killik urges clients to look for safe havens in 2009

With the financial crisis set to continue unravelling in 2009 and the economic outlook unclear, investors ought to seek the safety of large caps, according to Killik & Co analysts.

The wealth manager has revealed a list of companies and retail funds it believes investors should keep an eye on heading into 2009. Killik’s analysts highlight the need for companies to have visible earnings over the next 12-24 months, especially if the economic situation deteriorates further.

‘The world changed in 2008’, Killik’s head of research, Mick Gilligan (pictured above), noted. ‘In this environment, stock selection is critical and we would continue to recommend companies with visible earnings.  

‘The pharmaceuticals and tobacco sectors contain good examples and we would highlight AstraZeneca, GlaxoSmithKline and Imperial Tobacco. Invesco Perpetual Income is a fund that contains a high degree of exposure to these types of stock and one we continue to recommend.’

AstraZeneca, the global pharmaceutical giant revealed better-than-expected Q3 results and soon afterwards the management announced it was increasing its 2008 EPS guidance to $4.90-$5.05. ‘The group remains financially strong, providing the flexibility to make acquisitions in the existing therapeutic areas’, Jonathan Jackson, Killik’s head of equities said.

‘The shares are currently trading at the bottom end of the global pharmaceuticals peer group (7.7x 2009 EPS), a level which more than discounts the concerns over the group‘s ability to replace sales of products when they come off patent.’

Imperial Tobacco, however, is servicing debt in the wake of January’s £11.3 billion acquisition of Altadis, but Jackson says the firm is cash generative almost regardless of the economic conditions.

He said: ‘We remain comfortable with the group‘s financial position - net debt stood at £11.5 billion at 30 September - given the defensive and highly cash generative nature of the business. Imperial Tobacco is one of the more attractively-rated defensive stocks, currently trading on 10.3x 2009 EPS and a yield of 4.9%.’

Meanwhile, Gilligan is also keen to point out that while 2009 will inevitably involve sailing into the headwind, it may also present well capitalised firms with an opportunity to pick up market share from the wreckage of the global financial storm.

He said: ‘Financial strength has been a key driver of stock out-performance during 2008 and we expect this to continue during 2009 as the trading environment remains weak and the propensity of banks to lend remains low.