National Grid (LSE: NG), Reckitt Benckiser(LSE: RB) andShire(LSE: SHP) are three shares that you certainly ought to consider for your 2015 ISA.Alternatively, I am tempted to suggest the inclusion of one stock betweenGlencore(LSE: GLEN) and Royal Bank Of Scotland(LSE: RBS)instead of Reckitt, but that comes with caveats.
National Grid: Get Your Share Of Success!
National Grid is not having the best of times: regulatory hurdles and political risk weigh on its valuation, but weakness in its share price renders National Grid particularly attractive.
This national champion, with total assets of 52bn, is nicely priced at 16 times forward earnings. High dividend yields at many of its rivals signal risk, but National Grids market-beating forward yield of 4.8% is sustainable, in my view.
I dont fancy its balance sheet, but high net leverage above 4 times is not unusual among utilities in the UK and across Europe, and I doubt it will become a real problem because National Grids core profitability will certainly hold up better than that of others, and its 2.7% core free-cash-flow yield has been rising since 2013, which is one element I particularly like.
In spite of political risk stemming from the elections in the UK, Id buy the shares ahead of full-year results, which are due on 21 May.I reckon National Grid will likely surge to 1,020pin the next three quarters, for an implied upside of 15%.
Reckitt&Shire: Solid Buys
Reckitt and Shire are two obvious picks for your 2015 ISA.Reckitts fundamentals are strong, and itsmanagement team alone deserves a valuation of25 times forward earnings!Moreover, this is a bond-like stock that may fare incredibly well in any market conditions.
Overpriced?I hear you. Well, even in recent months, during which many investors have argued that Reckitt was way too expensive, it has been a catch-up game with estimates from analysts.The shares are up 15% year to date.
The average price target from brokers has risen to 58 now from 46 in the third quarter of 2013, but top-end estimates place a value of 70 on Reckitts stock, for an implied upside of 18% from its current level.
I think bullish estimates may well be right this time, and I would not be surprised if the dividend (2.1% forward yield) rose more swiftly in the next 18 months than in the past couple of years.
The Shire investment case is not too different from Reckitt, really.Its management team has shown that big paper losses from a huge aborted deal (read: AbbVie)dont really matter when senior executives have a clear corporate strategy in mind.
Now most analysts have pencilled in a price target that is in line with Shires current valuation of 56 a share, but higher forecast margins and plenty of flexibility with regard to its dividend policy make it a particularly enticing value proposition.
Upside from earnings also comes from recent deal-making, and at 24 times forward earnings, the stock simply deserves the price it fetches on the market.
Royal Bank Of Scotland & Glencore:Not For The Faint-Hearted
Perhaps you agree with investment guru Neil Woodford, and you think that Reckitt will deliver diminishing returns over time.Then, RBS and Glencore could push up the return profile of your investment, but you must love and embrace risk in order to add either stock to your portfolio.
RBS is not a macro play, its a restructuring story that doesnt offer any income but promises capital gains if management executes on their promises. Its balance sheet is getting better, and its valuation renders it an appealing buy if you believe the banking sector will continue to rally as it has done in recent times.I am not sure thats the case, and uncertainty surrounding interest rates may weigh on banks stocks more than investors think, however.
Elsewhere,Glencore is a classic buy if you believe that the global economy will recover at a faster speed than most economists forecast.China isnt doing great, but hey, with gross domestic product still growing at an annul rate of 7%, its not exactly a troubled economy!
As usual, the problem lies with high expectations for growth in emerging markets, and the bears do not expect anything good coming from the Far East in the next few quarters. If they are wrong, though, Glencore will start gathering momentum and will appreciate fast, given that it currently trades at a lowly 15 times forward earnings.
If you are looking for a similar kind of risk/reward profile to that offered by Glencore and RBS, you must take a look atour FREE investment and value report, which highlights several opportunities, including the stock of anengineering services business with a market value of 170m, which trades at a lowly 14x forward earnings, but whose shares have recorded a +654% performance in the last five years and a +217% performance in the last two years.
Do NOT buy these 3 stocks
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