Will BP plc, Greencore Group plc And Dignity Plc Beat The Index In 2016?

Are these 3 shares worth adding to your portfolio right now? BP plc (LON: BP), Greencore Group plc (LON: GNC) and Dignity Plc (LON: DTY)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Beating the index sounds straightforward in theory. In practice it can be a very different story. In fact, too many investors fail to outperform the FTSE 100 simply because they buy when others are greedy and sell when their investing peers are fearful. In other words, they buy and sell at the wrong points in the cycle. While satisfying short term ‘gut feeling’, that often leads to poor financial performance.

Things can only get better?

Take the oil sector at the present time. Many investors are currently selling out or are at least avoiding the purchase of oil companies such as BP (LSE: BP). This could make a great deal of sense in the short term because things could get worse. But crucially in 2016 and beyond, things could get a lot better for BP and its industry peers.

That’s at least partly because further problems already appear to be priced into BP’s valuation. For example, it trades on a price-to-book value (P/B) ratio of only 0.9 and while impairments are a real threat over the medium term, there appears to be significant scope for an upward rerating to BP’s share price. Further evidence of this can be seen in the fact that BP has a yield of 7.7%. While a dividend cut is on the cards, even a major fall in dividends would be likely to leave the company’s shares looking cheap compared to the wider index.

In terms of a positive catalyst, BP continues to enjoy a relatively strong financial position even after the huge cost of the Deepwater Horizon oil spill. Its modestly leveraged balance sheet and resilient cash flow mean it could emerge in a relatively strong position versus its peers and increase its market share. That would help it improve profitability and beat the index over the medium to long term.

Convenience counts

Also offering upside potential is Greencore (LSE: GNC). It’s a convenience food specialist that has delivered a rise in its bottom line in each of the last four years. This year it’s expected to post a 2% decline in earnings before returning to double-digit growth next year. As a result, there could be an opportunity to buy after the company’s shares have posted zero growth in the last six months.

Greencore also appears to offer appealing value for money with its shares currently trading on a price-to-earnings growth (PEG) ratio of only 1.5. And with dividends being covered 2.8 times by profit, there’s scope for a rapid rise in shareholder payouts, which could act as a positive catalyst in 2016.

Also having the potential to beat the market next year is funeral company Dignity (LSE: DTY). Its track record of earnings growth is superb, with net profit on a per share basis rising in each of the last five years at an annualised rate of 16.4%. And looking ahead to the next two years, Dignity is forecast to continue its excellent track record of growth with rises in its bottom line of 23% and 6% being pencilled in by the market.

Certainly, Dignity trades on a rather high valuation, with the company having a price to earnings (P/E) ratio of 22.8. But with the outlook for the global economy being relatively uncertain, stocks such as Dignity could see increased demand in 2016 from relatively nervous investors, thereby providing index-beating performance over the medium term.

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 BP. The Motley Fool UK has recommended Greencore. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

“The biggest lesson I’ve learned from the stock market in 2024 has been…”

Stock-market investing is subject to ups and downs (but, historically, ups overall!) What are you taking away from this year?

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Could a 2025 penny share takeover boom herald big profits for investors?

When penny share owners get caught up in a takeover battle, what might happen? Christopher Ruane looks at some potential…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »