Friday tips round-up: Diageo, Smith & Nephew, Catlin

Global consumers have cut back on quaffing Diageo's premium brand booze during the downturn in favour of the cheaper alternatives.

While Diageo's shares are not cheap, trading on 15 times forecast 2010 earnings, they still have a few more rounds in them, and it's not yet time to call last orders, particularly if customers start to trade up again. Buy says the Independent.

Smith & Nephew issued impressive numbers, beating expectations with a 22% hike in fourth-quarter earnings. That was a significant improvement on this time last year, but what's worth noting is what has been happening in S&N's market. People needing operations to replace dodgy joints have been putting them off during the downturn.

With long-term demographics in its favour and the slowdown in the company's market of last year likely to turn around soon, S&N is a strong buy says the Independent.

The long-term momentum behind Smith & Nephew's growth remains intact - whether demographics, through the sizeable increase in the US over-65 population from 2012, or the steady improvement in the company's operating margins from the adoption of more efficient manufacturing techniques.

The dividend yield is negligible. But 660p, or 12 times earnings, is not dear for a company whose profits should show mid-teens percentage gains for some years to come. Finally, S&N, valued at less than £6bn, remains a credible takeover target. Hold says the Times.

Catlin's short six-year life as a public company and the relative volatility of its underwriting earnings imply that it should trade at a lower rating than rivals. Even so, at 335Ÿp, or less than five times forecast earnings, and providing a solid 7.4% dividend yield, it looks far too cheap. Buy says the Times.

Can Catlin can keep up the pace? Premiums are still rising but the pace of growth has slowed markedly. The benign claims environment of last year probably can't go on forever, and investment returns are unlikely to be as stellar as this year's for two years running. So the company will be doing really well if it is to improve much its 2009 pre-tax profits of $603m. Avoid says the Independent.

JP Morgan Indian IT, which invests in major Indian companies, has seen some weakness in its share price recently as fears of a sovereign crisis in southern Europe has caused some investors to liquidate risky assets. India could raise interest rates sooner rather than later. It is also likely that the government's $125bn stimulus package is nearing an end, which does pose some risk. However, there is greater political stability after the country's Congress Party scored a resounding victory at election in May last year. The stance remains buy says the Telegraph.

GTL is now an operator of one of America's biggest ethanol refineries, sited conveniently close to Chicago, that processes a million tonnes of corn a year into biofuel additives for oil producers and high-grade animal feed for Asia's cattle farmers. It has GTL $130m of debt and is in the early stage of profitability. But it is the strong run in the shares, up 61% this year, that suggests there will be better times to buy, says the Times.


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