Broker tips: Income stocks, miners

23rd Oct 2009 13:13

US bank Citigroup has been casting its eye on income shares and reckons the sectors to focus on are telecoms and insurance, which look cheap when compared to banks and utilities.The US bank says UK equities still look good value on a dividend basis, and highlighted telecoms giant Vodafone and mining leviathan BHP Billiton, both of which appear to offer secure dividend income.Blue-chip companies with solid dividend cover and yields of more than 3% include drugs firm GlaxoSmithkline, household goods maker Reckitt Benckiser, fashion chain Next, accountancy software company Sage and engineer IMI, Citi notes.Mining stocks were doing their bit to drive Footsie forward on Friday morning, helped by an upgrade on the sector by Credit Suisse, which now has a 'benchmark' rating for the miners, having downgraded the sector back in May.'We upgrade mining because: a) global excess liquidity is at an all-time high and leads commodities by a year; b) industrial commodities tend to peak four months after the peak in IP momentum (i.e., the middle of the first quarter of 2010) and when manufacturing inventories peak; c) China should grow at 9-10% GDP until 2011 and commodity prices can rise even when China's investment growth slows (as in 2004); d) China may diversify some of its $2.3tn of foreign exchange reserves into commodities given its strategic needs and an undervalued currency); e) companies, stock prices and analysts in general are discounting prices 20-45% below spot; f) unusually, the sector has lagged emerging markets,' the Swiss bank said.Credit Suisse remains concerned, however, about inventory build up in China. Deutsche Bank, meanwhile, has been making positive noises about Anglo American while Morgan Stanley has nudged its price target for Vedanta Resources up to 3168p from 3112p, and reiterated its 'buy' recommendation on the stock.The bank thinks Vedanta has been out of step with other mining companies, 'pushing through with its programmes aggressively in the second half of 2008 and the first half of 2009, contributing to its towering growth profile, when other balance-sheet constrained companies were pulling back.'Morgan Stanley thinks the investment programme will pay off in the next two years so shareholders will not have to 'wait too long before the impact of the growth flows through to earnings.'