JP Morgan's 10 highest conviction trades

JP Morgan's small and mid-cap team has spent the past five years publishing a monthly list of its 10 top stock picks. It's been a huge success. In that time the portfolio of shares has put in a performance that more than doubled that of the FTSE Small Cap and FTSE 250 benchmarks, and beat them 75% of the time. Now, the exercise has become a quarterly list of top-picks with a 6-12-month view.

Bellway

"The prospect of 6.8% dividend yield and consistent EPS growth is compelling, in our view, and we believe will result in a rerating of the shares," says JPM. It likes housebuilder Bellway's sustainable earnings growth of over 10% and a forward PE ratio of 9.3 is a discount to peers.

BRIT

A specialty and reinsurance underwriter in the Lloyd's market, BRIT has an efficient capital structure and exposure to US growth says JPM. It trades on 1.4 times tangible net asset value (TNAV), a discount to the sector average, and offers a dividend yield of 7.5% with potential for a 4-5% special payout.

BTG

Specialist healthcare company BTG's new products have done well and its growth strategy is delivering better-than-expected results. Further initiatives should support low-single-digit top-line growth despite a softening market, says JPM. It thinks half-year results late January and full-year results should "easily meet and likely beat consensus expectations."

Cambian Group

Cambian (CMBN) provides specialist behavioural health services paid for by the NHS and local authorities. "(It) will likely benefit from a trend of austerity that could see the Private sector increasingly active and seen as part of the solution over the medium term,"says JPM. The business is defensive, with demand for services largely unaffected by economic conditions

Gem Diamonds

Gem Diamonds produces high-quality rough diamonds from the Letseng mine in Lesotho and markets them via tender in Antwerp. It boasts a free cash flow yield of over 10% and net cash is tipped to be about 30% of its market capitalisation by the autumn. A maiden dividend could be announced in September.

Henderson

JPM thinks the market is underestimating asset manager Henderson's potential for operating margin expansion over the next few years. It expects management to increase the focus on cost efficiency leading to operating margins rising higher/faster than expected.

Just Eat

Just Eat makes finding and ordering from takeaway restaurants much simpler. With smartphone penetration rising, increasing demand and ongoing urbanisation, takeaway food sales growth is outpacing GDP. Rising order volumes forced upgrades last year and JPM sees the potential for more driven by higher orders.

Phoenix Group

Closed life insurer Phoenix is a M&A target in ongoing industry consolidation. "It currently offers a dividend yield of 6.7% and offers free optionality on potential M&A over next couple of years," says JPM.

Senior

Aerospace and automotive engineer Senior is a high-quality way to play the civil aerospace delivery supercycle, according to JPM. It's generating 10% EPS growth and is getting more of its kit onto the big jet programmes. "We believe the shares can re-rate with the overhang of the uncertainty on the CEO transition removed," says the broker.

SSP Group

SSP (SSPG) runs food and beverage concessions in travel locations - think Upper Crust, Panopolis and Caffe Ritazza - mainly airports and railway stations. JPM estimates 15% EPS compound annual growth rate (CAGR) out to 2018. "We are confident that SSP can meet our forecasts by 2018e based just on ongoing steady revenue growth and labour cost reductions."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.