As investors we’re often flooded with information concerning the poor performance of the main indexes, and primarily the blue chip FTSE 100. Commentators this year have highlighted the underperformance of that index due to its overweighting towards oil, mining and big banks.
Top of the stocks
But 2015 hasn’t been a total washout for many of the FTSE 100 constituents with at least half of them showing a gain, and some of them a significant one. Indeed, if I could have foreseen the gains made by three stocks in particular, I would have sold my house at the start of the year and invested in them. One would have been the diversified investments group DCC (LSE: DCC), which has seen a near-60% gain so far this year. The other two would have been the fund supermarket and asset manager Hargreaves Lansdown (LSE: HL) and housebuilder Taylor Wimpey (LSE: TW).
Of course, no sensible investor really invests so narrowly. To do so is foolhardy, as we know shares come with risks that can seriously harm your financial health should the performance sour.
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History repeating?
However, it does pay to select certain types of shares that exhibit characteristics like operating in the sweet spot in the economic cycle, boasting a competitive moat, and enjoying strong trading momentum.
Looking at the three companies being reviewed today, it’s fairly easy to see what caused their outperformance. Can they repeat it in 2016?
Winning strategy
DCC seems an unlikely winner given its energy sector links. But win it has. Management has made a number of acquisitions for future growth. One such back in June 2015 saw the company complete the acquisition of the assets that comprise the Esso Express unmanned retail petrol station network and the Esso Motorway concessions in France.
The acquisition should provide DCC Energy with a scalable platform for further growth, particularly in the unmanned retail sector. When management last updated in November, they guided the market to expect slightly higher-than-forecast earnings, though given the recent warm weather the actual outcome could be slightly weaker than management expected.
Feel the quality
Trading at nearly 40 times expected 2016 earnings, shares in asset manager Hargreaves Lansdown don’t come cheap but you’re paying for quality. Indeed, there are few blue chips that can boast such high quality metrics. Return on Capital is north of 80% ranking it at number 12 in the market. Return on Equity is nearly 68% (even more impressive due to the company having no debt) and the company has 50% operating margins.
The company has held up very well given the fact that it’s a geared play on the stock market, though a market crash wouldn’t bode well for shareholders buying at these prices.
Shiny happy people
There are plenty of happy shareholders at FTSE 100 housebuilder Taylor Wimpey, though not as happy as those who purchased shares at sub-7p in October/November 2008.
The shares, along with other housebuilders have been on a strong run. When management updated the market back in November, they pointed to a strong summer and autumn. And although build costs were rising on the back of higher labour costs, this was more-than-offset by increases to selling prices and business efficiencies.
On a 2015 price-to-earnings ratio of just over 13 and a near-5% yield, I wouldn’t be surprised to see the shares making further progress in 2016. However, the book value at nearly 3 times tangible book suggests that these shares are no longer the bargain they once were.
Dividend winners
Another attraction for this basket of shares is the dividend appeal. While the yields on offer do range from sub 2% through to nearly 5%, all the companies here have grown the dividend since 2011, some longer still. And as patient income seekers will know, a well-covered growing yield when taken over time, can provide a wonderful return that keeps you warm at night.
