Shares that should be in your basket

Shore analyst Clive Black said: “We look forward to Greggs accelerating its store development and making progress with its bakery concentration in 2011, while from Tesco we look for growth but perhaps more importantly rising capital returns.”

Shore is least confident about online delivery firm Ocado, which it has given a “sell” recommendation.

It has also downgraded Bradford-based Morrisons from a “buy” to a “hold” recommendation, saying the grocer needs to provide clarity on direction before its strategic update in March 2011. Mr Black is maintaining his “hold” stance on Sainsbury’s stock saying that upgrades are needed to merit an upgraded rating.

“Industry volumes are expected to be sluggish albeit they may possibly pick up in the second half of 2011,” said Mr Black.

“Amidst much New Year price shouting, we expect broadly stable industry gross margins in 2011. If anything, margins are still building.”

Shore expects dividends to grow across the board, bar Ocado which remains in its investment phase.

“We harbour hopes that Morrisons may provide an income surprise in March through its appraisal of the balance sheet whilst other stocks’ pay-outs should follow the earnings line,” said Mr Black. “So, sector income credentials should exceed those of the All-Share index.”

Shore said the UK food retail market, given its well-known core traits, is reasonably resilient.

“A cliché, but a relevant one to state again within a generally fragile economy, is that people have to eat and so food has robust demand credentials not available to markets where goods are nice to have rather than a necessity,” said Mr Black.