From here until rate rises

BBC Radio 5 live wanted to discuss with me last week the interest rate decision of the MPC and the so-called 'surprise' 5-4 split.

Why a 'surprise'? The futures market has factored in several rate rises from now until December 2004. This week I have attended a briefing by SocGen's Asset Management Division's fund managers from UK, Europe, Japan and US funds. Their views in a nutshell? To my mind they could be summed up as UK better than Europe. Technology bullish for the long-term. Opportunistic on UK - that is bottom up stock picking.

So on that theme, what does look good presently for a picky picker? Well, let's start with the FTSE 350 - ie 350 largest stocks. We want stocks which show some popularity, that is, have risen over the past 20 days and 6 months, but not by too much. That is, they are discovered, but not by too many.

Next, let me find stocks which show a good price earnings growth ratio - that is stocks not overvalued based on their price and the growth of their earnings.

I will add to that stocks with a price-earnings ratio below 16 (not over valued in broad terms) but I only want profitable companies since I am being picky.

Equally I will go for companies with a dividend yield greater than I can get in a bank on the grounds that funds will lend buying support to such stocks. Oh, and I want ones which show increasing profits over last year.

So which stocks am I left with? Prudential is climbing out of sharp falls and on this basis finds support on several grounds. BT Group is also thrown up, but is was recently as low as 141p compared to the present 186p but it gives us a target for the year's high of 205p.

Old Mutual's price trajectory looks like that of Prudential - sharp falls then gradual rises. Rank and Alliance & Leicester are also thrown up.

Well, lots of financial stocks then, but what about Rank? Back to rates. If they rise and we spook consumers then such leisure stocks would suffer right? The only thing is, I am not so sure that rates will rise before consumers spend so much, corporates can live with the rise - so even Rank I can live with.

By the way, on the above picky criteria - only Hitachi Capital is thrown up in the FTSE Small Cap sector.

By the way, see you at Olympia on Friday 31st October - ADVFN will be there too.