In the Australian market, earnings are expected to grow by 20% in 2011, dividend yields are reasonable and there is room for some modest PE re-rating in the current year.
"Continued strong capital expenditure in resources and infrastructure should provide positive impetus to GDP growth," he says.
The stocks that Craigs favours, ranked by market capitalisation size, include Woodside Petroleum, AGL Energy and Fletcher Building.
Woodside is Australia's largest oil and gas exploration and production company. Its share price is $A41.71 ($NZ54.76) with a target price of $A53.55. It has a market cap of $A32 billion.
Mr Timms says the case for Woodside is compelling. The company has strong oil and gas operations that would generate revenue of about $A5 billion this year. Management is well regarded and the balance sheet is in good shape after the company raised equity late last year.
The rising earnings will drive dividend growth and the share price is at a 19% discount to the target price of analysts, he says.
Woodside's largest shareholder, Royal Dutch Shell, had sold 10% of its 34.3% stake at an 8% discount to the share price at the time.
"Shell has committed to retain its remaining shares for at least one year with limited exceptions, including a sale to strategic third parties. This announcement is a clear signal that Shell is ultimately a seller of its remaining stake in Woodside."
That could be positive for the company, given that Shell's stake has been seen as a deterrent to any corporate interest. Any takeover bid for the company would have required Shell's approval. Media speculation has focused on BHP Billiton, BG Group and other international oil companies as potentially interested parties, Mr Timms says.
AGL operates one of Australia's largest retail energy businesses, retailing electricity and gas to more than 3.5 million residents and businesses nationally.
That includes base, peaking and intermediate generation plants spread over traditional thermal generation and complemented by hydro, wind, geothermal, landfill gas and biomass generation.
AGL is in a prime position to benefit from the Australian Government's determination to add substantial new renewable generation over the next decade, he says.
"For at least the next five years, the only renewable electricity option is likely to be wind. The most important thing that any wind project developer needs is an electricity off-take agreement, usually with an electricity retailer. AGL is the largest electricity retailer and has demonstrated with wind farm developments that it can extract a significant margin between the cost of developing a wind farm and the value of the off-take contract."
The company's balance sheet is well placed to fund wind farm development opportunities and participate in the long-awaited privatisation of New South Wales' utility assets, Mr Timms says.
Fletcher Building, New Zealand's largest vertically integrated manufacturer and distributor of building products, is also well placed for growth.
The company's shares trade at about $7.95 and Craigs has a target price of $8.78. Market capitalisation is nearly $5 billion.
Mr Timms says the broad spread of operations that make up Fletcher Building, and the inherent cyclicality of the end markets it serves, inevitably result in below-average earnings visibility.
"This suggests a stock with an above-average risk profile. That said, from a bottom-up perspective, the group contains a number of individual business units that have attractive fundamental characteristics with exceptionally strong market positions generating strong relative profitability."
Investors are provided with a high-quality equity exposure to the theme of an "ultimate cyclical recovery" within a New Zealand context, he says.
Growth is expected in New Zealand housing for at least the next two years, with the additional benefits from repairs to leaky homes - which could last for 10 years - and rebuilding after the Canterbury earthquakes.
The Government has also outlined a 30% increase in infrastructure spending next year.
Contact Energy is another stock Craigs favours. It trades at about $5.93 with a target price of $6.96. It has a market cap of $3.5 billion.
Mr Timms says Contact has great assets but had faced big challenges during the past few years - some beyond its control and some entirely of its own making.
Contact's South Island hydro assets are fully leveraged to the volatile prices that had been recently seen in the New Zealand wholesale electricity market. Its thermal plants are some of the most efficient in the country.
The integrated structure of the industry means a new generation entrant was unlikely and that Contact's assets will continue to be unrivalled with strong earnings' growth potential.
"Wholesale electricity price volatility will continue as the system constraints and changing supply-demand mix become increasingly complex."
Craigs forecasts a strong recovery in profit growth for Contact over the next three years, although the first half of the financial year would be subdued as high lake levels keep down the wholesale price.
Seek is an internet media company and Australia and New Zealand's leading online employment and training company.
Mr Timms says it is potentially one of the most exciting growth companies listed on the Australian Stock Exchange. The company's shares trade around $A6.69 with a target price of $A8.20. It has a market cap of $A2.22 billion.
The websites allow jobseekers to search for jobs in a much faster and more efficient way than conventional methods. Seek has been affected by the global recession as unemployment rose and the numbers of jobs advertised fell. As conditions improve and unemployment falls, that should reverse.
The company required minimal capital expenditure to grow so the cash generated could be used for acquisitions or increasing the dividend.
Sky Network Television's greatest strength is its subscription-based revenue model which enables it to acquire premium content, such as sports, which in turn drives subscriber growth.
This perpetuates a "virtuous cycle", Mr Timms says.
Household penetration of about 800,000, or about 50%, is still low relative to the United States at near 100%. Compared to free-to-air broadcasters, the pay-TV business model is much stronger as it is not reliant on advertising to generate most of its revenue. Sky TV traded at $5.26 on Friday, its target price is $5.50 and it has a market cap of $2 billion.
Craigs expects the company to deliver above average long-term returns given its strong business model.
The upgrade of the infrastructure to accommodate high-definition services, including adding significant resilience to the satellite platform, removes the low, but possibly catastrophic, risk of satellite failure, Mr Timms says.
Other stocks worth watching this year are IOOF Holdings, City of London and Henderson Far East Income, he says.
Craigs rates Australian integrated financial services company IOOF as a buy, with a target price of $A8. The company offers wealth management solutions through its network of financial advisers and stockbrokers. Also, it offers superannuation administration platforms, investment and asset management products, estate planning and corporate trust services.
City of London is regarded as a low-risk option for gaining an exposure to a diversified portfolio of London-listed multinational companies, he says.
Henderson invests in some of the world's highest-growth markets with an aim to provide an above-average dividend yield, as well as capital appreciation from a diversified portfolio of investments traded on the Pacific, Asian and Indian stock markets.
Mr Timms says Henderson is an attractive way to invest in the increasingly important Asian economies.
GDP and demand growth across Asian emerging markets is likely to be supported over the next decade by low sovereign debt levels, urbanisation, favourable population dynamics, rising skill levels and rising competitiveness - raising living standards across the region.
The fund has provided a total return of shareholders of 484%, or 9.7% per annum, since September 1991 against the 258%, or 6.9%, gain recorded by the broader market.
