Share tips: Let's be daring this year: after all, how much worse can it get?

We pick potential winners for this year, and look back at what happened to our choices for 2008

All in all, 2008 was an annus horribilis for the tipsters. The FTSE 100 fell by 31.3 per cent, its worst decline on record, while AIM was down 62 per cent, leaving most investors and stock pickers severely burnt.

In putting together the pick for 2009, we have decided to be daring, so please be warned: there are a few flyers in this year's portfolio. The market is a minefield, where anything could blow up at any time. We have gone for some stocks which might not exist in a year, but could bring a hardy investor smashing returns. This time next year could see us puffing a cigar at the same table as Warren Buffett, or could see us serving at it.

Where better to start than the banks? How much worse can it get for Royal Bank of Scotland? The once mighty institution nearly collapsed in October. The share price is a staggering 87 per cent lower than this time last year, and the state is the majority shareholder, but despite the lack of dividend, surely the only way is up.

For gamblers, the bank's ruthless new chief executive, Stephen Hester, is the right man to strip back Sir Fred Goodwin's empire. He should turn it into a less risky business, with NatWest at the core, and sell assets to fund buying back the Government's preference shares. The risks are high – very, very high – but there might well be some value to unlock here by the end of the year.

At the other end of the scale of financial stocks is Goldman Sachs. Okay it's not UK listed, but it is easily tradable and a well-known name. Why Goldmans? The deadliest predator on Wall Street is hardly in trouble, yet is trading below its book value, and when the tide turns for investment banking will no doubt be among the pace-setters once more.

One of the few safe bets in the financial sector this year is that companies will have to restructure. This is where Begbies Traynor, one of the leading boutique advisory houses for distressed companies, comes into its own.

Begbies expects profit to be ahead of last year as the slowing economy brings business its way, but this is yet to price into the shares. During the gold rush it was the men who sold the tools to prospectors who tended to get rich. Think of this as the distressed version.

Our second big punt is Taylor Wimpey, another illustrious member of the 90 per cent club. This stock has managed to be the worst of the housebuilders, which is no mean feat given the pounding the sector has taken. However it could pay off handsomely if the troubled housebuilder can work out a deal with its lenders in February. The banks are unlikely to play hardball as they don't want to load their already battered balance sheets with housing assets. Some sort of limited debt for equity swap is the most likely scenario and, although probably dilutive, the likely net asset value in most swap scenarios is, according to the broker KBC, "well above the current price".

This is our second use of the warning siren, but a successful renegotiation could offer investors a substantial upside.

The third flyer is on the pub group Mitchells & Butlers. It was a tough year for the sector with the consumer slowdown, dealing with the smoking ban, and alcohol price hikes. M&B also scrapped its dividend as it looks to reduce borrowing. While the jury is out on whether pubs have further to fall, M&B will be restructured, potentially offering an upside for hardy shareholders. Despite the 60 per cent fall in share price it has attracted some big-name investors of late. JP McManus and John Magnier have upped their stakes, and the billionaire Joe Lewis recently bought Robert Tchenguiz's 25 per cent holding for £137m.

While commodities and oil looked good for the start of the year, the rumble of a slowdown in Asia had knocked many of the big players off their perches by the opening strains of "Auld Lang Syne". BHP Billiton was bombed out last year – although not as bad as some – and is our pick for 2009. It has much less debt than Rio Tinto, and the pressure on its price from the prospective takeover of its rival should recede with the collapse of the deal. The commodities supply chain has been squeezed, but if demand comes back, as it might well do towards the end of the year, investors should pick up a few bob.

In the wider market, we were tempted by Randgold Resources, but plumped instead for Yamana Gold. It is not pure play gold, but the expected gains in the metal's price should not be dragged by its exposure to copper. It has also underperformed heavily and we expect an upside. Also, besides the positive gold price outlook, the company stands to benefit from an attractive growth profile, with strong cash flow and steady production from advanced projects.

What of black gold? Falkland Oil & Gas looks a fairly decent bet. Smaller companies in the sector have taken a beating over the last six months, and there is little reason for short-term optimism as the oil price remains so low. But Falkland is in a better position than most. The company is still on track to start drilling at the end of 2009, with plenty of activity like sea bed imaging surveys and hazard assessments to push up the underweighted stock in the meantime. There is also the expectation of an announcement that BHP has secured a rig, which will be a further catalyst for the share price.

We do expect sterling to recover some of its lost ground this year, but one company benefiting from its current weakness is Bodycote, the UK engineering company. The group specialises in thermal processing, needed for heat treatments, isostatic pressing and metallurgical coatings all used by industrial companies. As they look to cut costs as margins are squeezed, outsourcing to Bodycote will look more attractive. Who knows, maybe Switzerland's Sulzer might be tempted to have another go at a takeover.

Biotech companies are hardly the darlings of the investor community, given their propensity to burn cash, often with little to show for it in the end. There are a number of success stories that investors would do well to consider.

One such group is the inhaled therapies company Vectura. The crucial thing for investors considering a punt on biotechs is picking one that actually makes money. This is something Vectura can claim by virtue of licensing deals with some of the giants of the pharmaceutical world, including Novartis. With more products expected to move into the third and final stage of testing next year, investors can expect hefty revenue growth.

So what of The Independent's 2008 predictions? We were not immune to the grim market conditions, and the portfolio is littered with casualties, but the stand-out winner was the biotech Proximagen Neuroscience. Ironically the company specialising in therapeutics for neurodegenerative diseases such as Parkinson's was the one stock we warned the widows and orphans about. Yet it ended the year up 31.9 per cent at 155p, and still looks to be going great guns.

That is where the good news really ran out. A few of the big beasts did okay, with BP down 14 per cent and BG Group, which enjoyed some takeover speculation and a cracking find off the coast of Brazil during the summer, down 14 per cent. A few other defensive sectors included United Utilities and the-ever defensive pharmaceuticals sector with Shire down "just" 11.7 per cent.

Last year was particularly bad for the media, especially newspapers, with circulation falling, advertising revenues dropping off a cliff and a prospective rise in newsprint costs all weighing in. While it wasn't as bad as the rival tipster who went for Johnston Press – the worst stock in the All Share – we had Daily Mail & General Trust. It ended the year down 44 per cent at 274.75p. Stop press indeed.

It was an atrocious year for the banks. While the best would have been HSBC, down 23 per cent on last year, we could have done worse than picking Standard Chartered, which closed 48 per cent lower at 875p. It survived because it is not exposed to the US subprime market, but while its Asia focus looked good initially, it came off with the downturn in the region.

Then on to the real horror shows, whose performances were worse than Tottenham Hotspur's this year. Virgin Media, UK-focused but listed in the US, wasn't great, although the plunge of sterling against the dollar meant that the 73 per cent falls haven't hit us quite so badly.

The internet advertising group Phorm actually looks to be alright moving into 2009, with a string of recent contract wins. The market didn't think so, unfortunately, and all the advertising stocks have been smashed. We were betting on a takeover, but it never emerged. Oops. Phorm ended up losing 85 per cent of its value.

The wooden spoon goes to International Ferro Metals, and our expert tipster in the City will get a slap on the wrists for that one. The price of ferrochrome has collapsed and production cuts following falling demand has left it a whopping 87 per cent lower than last year. This should recover at some stage, but we ain't sticking around to find out.

Professionals bet on cash generation and growth

In 2008 fund managers lost billions on equity market bets that may have seemed safe a year ago. The financial crisis has taken its toll on The Independent's panel of experts' picks for 2008, with our index not containing a single stock in positive territory.

Top performer in 2008 was Simon Gergel of Allianz Global Investors, who backed GlaxoSmithKline, although the defensive stock was hardly the bravest of picks. An honourable mention also goes to Richard Hallett of Hargreave Hale, who opted for Asos, the online retailer, which only lost 4.5 per cent.

This year's wooden spoon heads to David Keir of Scottish Widows. He plumped for Enterprise Inns. In a shocking year for the pub sector, the shares fell 86 per cent. Aberdeen Asset Management's Charles Luke doesn't look particularly clever either for going with the Daily Mail in a year where media companies hit a wall.

This year's panel and their tips are:

Judith MacKenzie, Acuity Capital

My tip for 2009 is the Aim-listed biotech group Advanced Medical Solutions (AMS). Unlike many small biotech groups AMS, which specialises in wound healthcare and surgical wound healing, is cash generative with exposure to several defensive markets. The management team, led by the chief executive, Don Evans, has done well in recent years and has a reputation for under-promising and over-delivering.

FTSE 100 prediction: A tickle above where it closed in 2008.

Sandy Chen, Panmure Gordon

As a banking sector analyst, I cannot tip anything in the financial industry in 2009. There is a significant risk that the UK economy is set to be hit by the dual problems of deflation and deleveraging: asset prices will fall, bad debts will increase, the unemployment rate is set for further hikes, and more people will be forced out of their homes, all of which is bad news for the banks.If I were buying it would be in sectors like transport.

FTSE 100 prediction: 3500.

Jonathan Jackson, Killik Capital

Capita, the public and private sector outsourcing group, which undertakes tasks considered non-core to the client's main business, such as customer services and human resources, is one of our tips for 2009. Although the outsourcing industry is well established, only 5 per cent of the potential £95bn UK market has been tapped so far, providing plenty of opportunity for growth. The group has a high degree of visibility over its revenues because the majority comes from long-term contracts.

FTSE 100 prediction: 4800.

Bruce Packard, Evolution Securities

HSBC is the most powerful banking brand in the world. Large deposit inflows seen amid the turmoil of September-October 2008 speak more eloquently than any survey or focus group. While other UK bank stocks are currently "cheap", there are so many uncertainties we believe they represent speculative bets.

FTSE 100 prediction: Pretty flat at 4400.

Henk Potts, Barclays Stockbrokers

AstraZeneca has enjoyed a successful 2008. A combination of reduced short-term generic threats on two products in its core portfolio, strong operational performance, a good handle on costs and positive trial data have resulted in strong share price performance in a difficult market.

FTSE 100 prediction: 4700.

Charles Luke, Aberdeen Asset Managers

Although Whitbread is known for its brewing heritage, following a period of streamlining its operations, its focus today is the Premier Inn chain of budget hotels, which should prove relatively immune from the recession. The chain provides attractive longer-term growth opportunities domestically and on an international basis. Whitbread also owns a collection of pub restaurants mostly co-located with Premier Inn hotels as well as the Costa Coffee chain. It benefits from maintaining a substantial freehold estate and trades on around 10 times earnings.

FTSE 100 prediction: 5000

Justin Jordan, Credit SuisseAsset Management

One market in which the UK is a world leader is insurance, and most liquid and impressive in the sector is Amlin, which entered the FTSE 100 right at the end of last year. Amlin, the Lloyds insurance company, is the best listed insurance vehicle. It is highly profitable and highly cash generative. The firm, as a major US dollar earner, is also benefiting from the dollar's relative outperformance versus sterling. Investors can also rely on a safe dividend yield.

FTSE 100 prediction: The start of the year could se the FTSE retesting the lows of October 2008, but should strengthen in the second half, 4800.

Charles Pick, FinnCap

Hilton Food Group comprises the highly automated packaging of red meat for two retail giants, Ahold and Tesco. Revenues were only £294m as recently as 2004, compared to the £713m we project for 2008. Hilton Food has a record of growing symbiotically with its customers which are still gaining share from traditional butchers. For instance, the group's Polish plant is now supplying Tesco in four central European countries. Over time, expansion into additional geographic markets and the servicing of additional retailers is probable. We also like the strongly cash generative qualities of the business and the experienced management team (due to tight hygiene and meat traceability issues entry barriers are higher than one might imagine). There are also large euro-related revenue streams: in 2007 we estimate that 63.8 per cent of meat tonnages were packed in euros or euro-linked currencies.

FTSE prediction: 4500

David Keir, Scottish Widows Investment Partnership

First Group, the operator of buses and trains in the UK, widened its geographic footprint early in 2007 after the acquisition of Laidlaw, a leading operator of school and inter-city buses in the US. The share price came under pressure during the first half of 2008, reflecting concerns over the oil price and the perceived cyclicality of its rail business. The group's half yearly report underlined the strength of its business, with passenger revenue growth up 7.7 per cent in its bus operations and 9.8 per cent in its rail operations. Synergies from the integration of Laidlaw are also running ahead of target. The group will not be immune to the downturn. However, with only one of their rail franchises exposed to the more vulnerable area of commuter traffic and a large proportion of the company's debt refinanced post the Laidlaw deal, the company looks well placed to weather the tough times ahead.

FTSE prediction: 5100.

Harry, aged 3, knows how to play safe

In what looks like being a tough year for stock market investors, Harry Prosser, three-year-old son of The Independent's deputy business editor, is playing safe with his share-buying recommendations.

Top of his list for 2009 is BT Group, a company to which Harry is already exposed through his love of talking to assorted grannies and grandads at great length on his parents' bill. Harry believes it's good to talk, and that only the largest companies, ideally in utility markets, will prosper in 2009.

That reasoning also underlies his pick of Scottish & Southern Energy, the domestic energy company. Harry has noticed his parents' blood pressure only heads one way when opening gas and electricity bills – upwards, naturally – and hopes these shares will do the same.

Harry's next tip is GlaxoSmithKline, the pharmaceuticals giant. His reasoning isn't so much that in an ageing Western world, the market for drugs is constantly growing, or the fact that medicines budgets are the last to face cut-backs in difficult times. No, he thinks GSK's unique selling point is Ribena, or pink juice as he believes it should be rebranded. Investors' thirst for GSK stock must be quenched, says Harry.

Share tip number four is CRH, the Irish construction group. Harry's decision to recommend a company so exposed to the collapsing property market may surprise some analysts, but he sticks to his guns. Having persuaded his parents to invest heavily in Mega bloks and Lego this Christmas, Harry knows bricks and mortar is the place to be for long-term value.

Harry's final suggestion is the bookmaker Ladbroke's. His family aren't particularly keen gamblers, but Harry has seen enough of the way punters' irrational behaviour leads to big losses – not least during last year's disastrous Grand National sweepstake, in which horses were picked on the basis of the prettiest riding colours – to know the odds are stacked in the favour of bookies. Besides, he adds, anyone backing a three-year-old's tips is obviously keen on taking a punt.

A glance at last year's suggestions shows the difficulty Harry faces – although the fact that two of his seven 2008 tips show a profit puts his hit-rate higher than that of many professionals. British Energy, up by 41 per cent, was a stroke of genius. As was Benfield, up 26 per cent. Less inspired were Persimmon, down 72 per cent, ITV, down 54 per cent and Alphameric, down 53 per cent. But you can't win them all.