BAE
Having released a profit warning earlier in the year, shares in BAE (LSE: BA) have performed surprisingly well. Indeed, they are up 6% year-to-date, while the FTSE 100 is down 2% during the course of the year.
Despite their strength, shares in BAE still trade at a very attractive price. For instance, they have a price to earnings (P/E) ratio of just 12.2, which is lower than the FTSE 100’s P/E ratio of 14.1. As such, there is upward rerating potential over the medium term.
Furthermore, with a yield of 4.4%, BAE should attract income investors during the course of 2015, which could help to push its share price higher. Although there may be fluctuations in demand for its products, with the global recovery improving, BAE could enjoy a more profitable period in 2015 and beyond.
Santander
Shares in Santander (LSE: BNC) are down almost 2% since the start of the year. However, they appear to be somewhat mispriced, since the bank is expected to increase its bottom line by an impressive 24% in the current year, and by a further 20% next year.
This puts it on a price to earnings growth (PEG) ratio of just 0.6, which indicates not only good value, but that there could be share price gains ahead.
Furthermore, with a yield of 7.6% on offer for next year, Santander’s total return could easily be in the double figures in 2015. And, with dividends set to be covered by profit next year, such a generous dividend does not come at the expense of sustainability, either.
BP
When it comes to bargain basement stocks, BP (LSE: BP) is difficult to beat. With Russian sanctions, the Deepwater Horizon oil spill fallout and a lower oil price all weighing on sentiment, it’s little wonder that BP is trading on a P/E ratio of just 9.9.
However, its P/E ratio could expand in 2015. That’s because it remains hugely profitable and is expected to increase its bottom line by 5%, which is in-line with the wider market’s forecast growth rate. As such, a very low P/E ratio is difficult to justify.
Furthermore, with a yield of 5.6%, BP still makes a lot of sense for income seeking investors, and demand from this type of investor could help to push BP’s share price higher over the course of 2015.
Aviva
2014 has been stunning year for investors in Aviva (LSE: AV). Shares in the insurer are up 17% year-to-date and, despite this, still only trade on a P/E ratio of 10.9. As such, there is plenty of scope for an upward rerating next year.
The catalyst for an increased valuation could be a rapidly growing dividend. For example, in 2015, Aviva is expected to increase dividends per share by a whopping 15.1%, which is an incredible 12.5 times the current rate of inflation.
As a result, income investors may be tempted to buy a slice of a company that is successfully implementing its turnaround strategy and shares in Aviva could record yet another fantastic year of gains.
RBS
At the height of the credit crunch, when assets were being written down left, right, and centre, a price to book ratio of less than 1 for RBS (LSE: RBS) was easy to justify. Now, though, with the UK economy growing at a vast rate and RBS set to go back into the black, it’s tough to explain a price to book ratio of just 0.4.
Furthermore, RBS also looks dirt cheap based on the P/E ratio, with it being just 10.5. As such, RBS could be due a substantial rerating over the medium term.
In addition, with dividends set to start flowing out of the bank next year, it could generate appeal as an income play and this could be the catalyst to help move its share price northwards in 2015 and beyond.
Indeed, buying cheap stocks such as RBS, BP, Santander, BAE and Aviva is one way of boosting your portfolio returns. In fact, value investing can be a superb strategy to take advantage of the fluctuations in share prices that are an integral facet of the stock market.
