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BBA, Biffa and Stock Spirits among JPM Cazenove's top mid-cap picks
UK businesses that are resilient to a domestic slowdown and have significant exposure to growing overseas markets are the foundation for JP Morgan Cazenove's top small and mid-cap share picks for 2018, including BBA Aviation, Clarkson and Hollywood Bowl.
"From a macroeconomic perspective, we expect relative growth in the UK to continue to underperform in 2018," analysts said, predicting the financial and political system to be dominated by efforts to move towards a Brexit transition deal.
The main risk to the bank's house view that real GDP growth will remain positive in 2018 "is the possibility of the Brexit talks breaking down", while the main upside risk comes from the strengthening global backdrop.
Amid an expected interest rate tightening of 50 basis points by the Bank of England over the year due to a sustained overshoot in CPI inflation, a "subdued and uncertain environment" requires resilient stocks with overseas exposure.
Of the 38 stocks given an 'overweight' rating by the small and mid cap analyst team, six "key" ideas were identified.
BBA Aviation is admired for its cash generation and structural tailwinds, waste group Biffa is seen a "leader in the stable environmental sector, investing in growth" and shipping broker Clarkson, a "diversified market leader with earnings recovery potential".
Packaging group DS Smith was picked for "consistent delivery and a new avenue for growth in the US", leisure sector player Hollywood Bowl for the "long-term rollout potential with resilient demand" and drinks group Stock Spirits for "earnings momentum, 100% exposure to Central Europe".
Three key 'underweight' ideas are mass travel business Go-Ahead for its "poor business mix" with full year guidance excluding rail looking "optimistic", Greene King is avoided for its "underperforming pub estate with severe cost headwinds" and car dealership business Pendragon as it is "poorly positioned at a cyclical peak with high gearing".