DAVY Stockbrokers said its top picks for 2012 include food companies Kerry, Glanbia and Südzucker, but it predicted that cement company Holcim, metal group ArcelorMittal and Air France KLM will struggle in 2012.
Other companies tipped for growth next year include building materials giant Wolseley, exploration company Dragon Oil, low fare airlines Easyjet and Ryanair, travel software company Amadeus and bookmaker Paddy Power.
The broker warned that 2012 will be a tough year and said it was now likely that the euro area will experience a double-dip recession. The British and Irish economies will probably expand at lower rates than last year and there could be another year of earnings downgrades.
Davy assumes only limited recovery in developed markets in 2012 and the likely slowdown in growth in most emerging markets.
"In this environment, careful stock picking in defensive sectors is likely to be the key to outperforming the market," the country's largest broker said in a note to investors yesterday.
"Our top picks by sector are characterised by companies that can grow the top line in any environment combined with strong balance sheets and cash flow."
Davy analysts like Wolseley because it makes half its money outside the US residential market and has one of the strongest balance sheets in the sector. Dragon is also praised for a balance sheet that contains $1.35bn (€1.04bn) in cash, which will allow the company to make acquisitions. The analysts believe that Ryanair and Easyjet are spinning off cash and may soon pay dividends to shareholders.
German sugar giant Südzucker is hailed for a strong balance sheet while the analysts predict EU rules will continue to favour the company. Glanbia could benefit from the removal of milk quotas later in the decade.
The final stock to get the thumbs up, Paddy Power, is described as "a lock-away for portfolios" because there is little regulatory risk and a good earnings record.
Among the firms that Davy doesn't like are building materials company Lafarge, explorer Cairn Energy, airline Lufthansa, brewer Heineken and book maker Betfair.