Why National Grid plc & Pennon Group plc Are The Perfect Partners For Tullow Oil plc & Premier Oil PLC In Your Portfolio

A mix of National Grid plc (LON: NG) and Pennon Group plc (LON: PNN) alongside Tullow Oil plc (LON: TLW) and Premier Oil PLC (LON: PMO) could boost your portfolio returns. Here’s why.

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Although there are many facets to investing, with many investors identifying themselves as being more focused on growth, value or income, a balance between all three seems to be a sensible middle ground. Certainly, it may mean that the potential rewards in the long run are limited somewhat, but it also equates to less risk and reduced volatility, which should help you to sleep much easier at night.

Utilities

Of course, the utility sector is very much an income and low volatility play. While the likes of National Grid (LSE: NG) (NYSE: NGG.US) and Pennon (LSE: PNN) may not provide astounding growth potential as a result of their rather ‘slow and steady’ business models, they offer tremendous income prospects, low volatility and a relative certainty that your capital will not be in too much danger over the medium to long term.

For example, National Grid and Pennon both have betas which indicate that their shares should offer reduced volatility and resilience during challenging periods for the wider market. In fact, National Grid’s beta of 0.87 and Pennon’s beta of 0.61 show that if the market were to fall by 1%, then (in theory at least) their share prices should fall by just 0.87% and 0.61% respectively. And, with the outlook for the FTSE 100 being relatively uncertain as a result of the prospect of the UK leaving the EU over the next couple of years, it may be prudent to add more defensive companies to your portfolio.

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In addition, National Grid and Pennon also offer excellent income prospects. For starters, they currently yield 5.1% and 4.1% respectively and, looking ahead, are expected to increase their dividends at a healthy rate. In Pennon’s case, dividends per share are forecast to rise by 6.8% next year, while National Grid is committed to increasing dividends by at least as much as inflation. Certainly, with inflation being a negative number at present, this may not appeal so much. But, with a loose monetary policy likely to drive it upwards, National Grid’s aim could become a very appealing prospect over the medium to long term.

Oil

Of course, the oil sector offers growth potential that utilities simply cannot match. For example, Tullow (LSE: TLW) and Premier Oil (LSE: PMO) are expected to increase their bottom lines by 57% and 24% respectively next year. That’s many, many times faster than the wider index growth rate and, despite this, both stocks offer an excellent margin of safety, with Tullow having a price to earnings growth (PEG) ratio of just 0.4 and Premier Oil’s PEG ratio also being appealing at 1. In fact, both stocks could be all set for stunning share price growth, and now could be a great time to buy them.

Looking Ahead

While none of the four stocks here are balanced in terms of offering growth, income and value potential in one place, a mix of the four should provide your portfolio with a boost in all three areas. As such, a mix of National Grid, Pennon, Tullow and Premier Oil seems to be a logical step – especially if you think the oil price will rise in the long run, and that there could be challenges over the next few years for the FTSE 100.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of National Grid and Pennon Group. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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