I like to mark the start of a new investment year by reviewing and sharing a few top picks that should do well over the next 12months.
I wont be recommendinginteresting and under-researched micro-caps or stocks that promise the world on a plate. I like businesses that make money, are well-established, and shouldbe trading well long term, not just the next 12 months. This approach has served me well and I believe it will continue to do so in 2016 and beyond.
Here arethree well-established UK-focused businesses. One kept pace with the FTSE 100this yearand the others outperformed it by some margin. Lets find outwhat makes me think theylloutperform in 2016
Banking on a better 2016
2015 started well forLloyds (LSE: LLOY) with the shares ahead of the FTSE 100 by some margin in the first half. But theyfell in August with the rest of the market during the start of the on-going market volatility.
Plus therewas an ill-received Q3 update guidinginvestors to expect lower income than 2014, the main sticking point being a 7% reduction in other income. It had started to recover in Q4, but not enough forthe growth investors hoped for.
Theshares sold off on the day and slipped below 70p brieflyearlier this month. However, theyve regained their composure over the last few trading days.
Heading into 2016 with a forecast P/E of less than 10 times earnings, a forecast 5% dividend yield, and a tangible book value of just over one they look quite good value. Add into the mix the upcoming retail interest in the spring and the potential rise in interest rates, and theycould well outperform if the economy holds firm.
Building on success
2015 was a very good year for investors in FTSE 100 housebuilder Persimmon (LSE: PSN). In addition to the 95p per share dividend paid in April, the shares have easily beaten the market.But can this continue into 2016?
Whilehousebuilders are exposed to the health of the economy, I believe the shares can make further progress in 2016.
True, house prices are not cheap and I believe theres less room for unsustainable rises than weve seen since the financial crash. However, the government supports house ownership, theres still a chronic house shortage, and a good appetite for new houses from prospective buyers.
Add to the positive environment a below-market-average forecast P/E of around 12 times earnings and a market-beating 5% yield and I believe that theres still room for the shares to increase over the coming year.
Another winning share in 2015 has beenJupiter Fund Management (LSE: JUP). With the shares trading at nearly 16 times earnings, they dont scream bargain. But it can pay to buyquality.
Indeed, the ROCE (Return On Capital Employed), ROE (Return on Equity) and operating Margin are all in the top 10% of the market. Who says fund management doesnt pay? These quality metrics all add up to a business with a defendable moat, just what Warren Buffett looks for in companies.
This quality shone through when management updated in October. Even with the challenging market backdrop at the time, itstill reported a 5% increase in AUM (Assets Under Management) forthe first nine months.
Finally, analysts expect the company to continue to distribute excess cash to shareholders going forward, which means theycould net a 5%-plus yield with the shares trading at around 455p.
Will you grow richer in 2016?
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Dave Sullivan owns shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.