16th December 2015
The Share Centre’s investment research analyst Ian Forrest tips six stocks he believes could prosper next year…
Advertising industry giant, WPP, is widely regarded as a global economic barometer. The company offers a wide range of exposure to both digital media and global markets, and has seen its share price rally of late. Subsequently, the group is likely to benefit from the hugely significant worldwide events taking place in 2016, such as the US presidential election, the Olympic and Paralympic games and the EU referendum, to name just a few.
The company recently warned that clients were becoming more cautious in light of market volatility. However, investors should acknowledge that this is a group which has seen steady progress in emerging markets, with around 30% of revenue now coming from these countries. New technology should also help open up avenues for growth over the longer term. This is reflected by new media-related business being WPP’s fastest growing area. Furthermore, recent news of its acquisition of a majority stake in Essence Digital, a buyer of digital media, can only mean more progress in 2016. We recommend WPP as a ‘buy’ for investors with a balanced portfolio and would highlight the long-term attraction associated with this stock.”
National Grid and Unilever
Given the degree of uncertainty around issues such as the faltering Chinese economy, a rising US interest rate, volatile commodity prices and the EU referendum, it may prove better for investors to capitalise from larger, solid, more defensive stocks. As a result, we would recommend power and gas distribution company, National Grid, and consumer goods manufacturer, Unilever, as lower risk investment choices in 2016.
It emerged recently that National Grid would be selling a majority stake in its gas distribution business, with the aim of returning the proceeds to shareholders in 2017. The company is in a solid position at present, with the CEO stating recently that it remains on track to deliver good overall returns and dividend growth in the financial year.
We have long been fans of National Grid and currently recommend it is a ‘buy’ for income seekers. The eight-year agreement with its regulators in 2013 was seen as important and has improved confidence in the group. Moreover, the company continues to see a good level of progress and an improving outlook for its operations in the US. Additionally, it has an attractive dividend yield of around 4.8%, which will grow (at least) in line with inflation in 2016.
Unilever, the 400-brand consumer goods company, has been trying to grow its sales in the vibrant emerging markets, where it believes the expanding middle classes will provide strong demand for its global brands for many years. That desire has been frustrated in recent times by a slowdown in growth in many emerging markets, but there are some signs that that situation may be changing going into 2016.
The shares have outperformed the market over the past year, but the 2016 price/earnings ratio of 20.9 is still slightly better than the group’s main peers. The company is well managed with a diverse portfolio of global brands and a healthy dividend, continues to see the benefits of its cost-cutting measures and good prospects for a recovery in emerging markets so we are recommending the shares as a buy for lower-risk investors.
Smith & Nephew
If investors are looking for a good, stable, medium-risk company which is showing some encouraging growth signs, then medical devices group, Smith & Nephew, would be our choice for 2016. The group is an industry leader with three main global business units, which jointly offer over 1,000 product ranges in over 90 countries worldwide. As well as benefiting from the ageing populations in developed markets, the company is expecting to do well from rising average incomes in emerging markets next year. This is where healthcare systems and hospital infrastructure are developing at a robust pace. It is also an area that Smith & Nephew are looking to strengthen, and it aims to be market leaders in Brazil, Russia, India and China in the future.
Investors may see cyclical and market fluctuations affect the company in the short term, but the longer-term drivers remain steadfastly in place and the company has continued to show good underlying performance. As a result, we recommend Smith & Nephew as a ‘buy’ for investors seeking capital growth.
Hill & Smith
Hill & Smith is a company that is doing well in one of The Share Centre’s favourite sectors for next year: construction and road building. The group itself supplies a range of infrastructure and galvanizing products to customers in the UK and markets around the world. Investors should appreciate that trading in specifically the UK and US remains strong. Healthy results throughout the whole of 2015 mean the group is on track to meet full year expectations and continue doing well in 2016.
We recommend Hill & Smith as a medium-risk ‘buy’ due to its exposure to growth in long-term investment in the infrastructure and utilities sectors in the UK and US, good dividend yield and strong management. The company has been investing heavily in new assets, which should ultimately boost earnings and demand for products related to the UK government’s roads investment scheme.”
OPG Power Ventures
OPG Power Ventures is a small, AIM-listed company that operates medium sized coal-fired power plants in India, and we believe it is an interesting stock choice for investors seeking growth within their portfolio in 2016. With the country’s demand for power in excess of supply, the group’s management are confident that its expanding operations will benefit from this and lead to further growth opportunities. OPG has brought a number of new plants on stream in 2015, and the company has a good record for hitting its schedule. It is also looking to develop wind and solar powered plants in the future.
Potential investors will appreciate that the group’s results continue to highlight the progress it has made over the last year, and management believe that it is well positioned for the future. With new energy plants increasing output and high demand for its services, we recommend OPG Power Ventures as a ‘buy’ for investors. Bright prospects, including the new Indian government’s desire to have reliable power as a foundation for social, industrial and economic growth, make this a choice for investors looking for growth, but also willing to accept a higher degree of risk.