Based on the value of the stocks at the moment and their potential to generate strong returns over the next 12 months, Canaccord's list also includes consumer goods group Reckitt Benckiser and media company ITV.
Although many commentators on the equity markets have become more bearish into 2018, and have been "spooked by high valuations" according to Canaccord's senior equity analyst Simon McGarry, the wealth management firm said it remained "cautiously bullish".
"We think that increasing volatility and lower asset class correlation will provide some canny investment opportunities," said McGarry.
Here were the firm's seven key stocks for 2018:
|Stock||Reason for selection|
|Lloyds Banking Group||McGarry noted that Lloyds has "done well" under the steerage of Antonio Horta Osorio. The UK government is now no longer a shareholder, and the bank has resumed paying a dividend – even adding a special dividend last year. It is a low-risk bank after its "massive restructuring", McGarry added, and with the approaching deadline for claims resulting from miss-sold payment protection insurance (PPI) – which has caused the firms some problems – Lloyds' ability to return capital to shareholders should be boosted.|
|Reckitt Benckiser||With a portfolio of 20 "superbrands" ranging from Nurofen to Vanish, the consumer goods company is looking strong. The acquisition of baby food maker Mead Johnson was its "most ambitious to date", McGarry said, adding: "We think children’s nutrition is mostly immune to the deterioration of pricing power we’ve seen in other consumer categories." Reckitt is currently trading at a 16 per cent discount, though Canaccord predicts organic growth will pick up in 2018.|
|BCA Marketplace||The auto exchange, perhaps best known for its online car marketplace webuyanycar.com, demonstrated in results last year that its business model is much more resilient than many of its peers'. "We think their position as the market leader in the UK is sustainable for many reasons, including a critical mass of buyers and sellers. For a competitor to try and replicate their business model is nigh-on impossible," said McGarry. With a vehicle remarketing business and automotive services branch too, Canaccord believes there is opportunity for the company to expand its European reach.|
|ITV||Carolyn McCall, former chief executive of Easyjet, is set to replace Adam Crozier at the helm of ITV this month. Under Crozier's leadership ITV's profits increased by 338 per cent, but McCall more than doubled earnings at Easyjet. Running one of the UK's prime television channels, ITV "has weathered the storms in TV advertising pretty well and we are starting to see green shoots with a return to growth expected in the fourth quarter of 2017", said McGarry.|
Although takeaway delivery marketplace Just Eat has already made a significant impact on the UK, Canaccord believes there is plenty more scope for growth in the domestic market as online penetration in the sector increases. Added to that, there is a much larger opportunity for growth in its 11 overseas markets. It has diversified into card processing, wifi and motorbike insurance, as well as helping with logistics and delivery planning.
|Petrofac||The oil and gas engineering and construction company is unique by way of its "integrated service offering", as it offers to take over operation of small, less profitable oilfields in exchange for long-term performance-based contracts. Shares crashed last year as the company was subjected to an investigation by the Serious Fraud Office, but McGarry said: "We struggle to reconcile the £1.5bn drop in market capitalisation since March with the likely cost of the penalty, which is estimated by analysts to be in the region of $300m."|
|BT||The UK telecoms giant got off to a wobbly start in 2017, after an Italian accounting scandal meant a writedown four times larger than previously estimated. The shares have continued to drift lower, due to investors being "increasingly concerned about a possible dividend cut due to a pension top-up issue". But this issue is being addressed, as is the final roll-out of Openreach. While these problems may still cause sticky patches for BT, Canaccord believes "the current share price is assuming the worst on all accounts".|