Six hot stocks for 2016
30th December 2015 09:30
by Lee Wild from interactive investor
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Despite an on-off Santa rally, stockmarkets remain little changed on the year. However, things went far better for most of my six equity picks for 2015. Of the three high-risk growth stocks, speciality paper company rocketed by 60%, and pumps and motors supplier jumped 15%.
Unfortunately, a bear raid wiped out mobile marketing and music-streaming business . Each of the three income stocks also did precisely what they were picked to do. Two even generated substantial capital returns. At the tip price, yielded 7%. Profits are growing and the chemicals supplier is generating lots of cash, so the shares also rose 41%.
Residential property developer actually improved its already generous payout from 90p to 100p. Shareholders received a yield of 7.9% and a 39% surge in the share price. But the government's axing of the climate change levy exemption in August 2015 winded renewable energy firm . A bid from major shareholder Monterey Capital limited losses for investors to 19%, and a final dividend earlier in the year gave a yield of over 5%.
Speculative growth
Constellation Healthcare Technologies
Share price 179p; PE ratio 14.0; dividend yield 0%
is a US-based provider of billing services to doctors there. It floated in London a year ago at 135p, and the shares have done well.
Acquisitions are a key part of the strategy, but better-than-expected organic growth means full-year cash profit will be at the top end of market expectations. There's plenty of opportunity to grow in this highly fragmented market worth $37 billion (£24 billion) annually. Analysts predict annual profit growth averaging around 20% over the next two years for Constellation.
32Red
Share price 113p; PE ratio 10.8; dividend yield 2.6%, Online casino operator
is already a proven performer. Despite recent government regulation covering gambling, including the UK point of consumption tax, both revenue and underlying profit are growing at breakneck speed. If 32Red continues to match City forecasts, earnings per share should rise by over 60% in 2016, and double over the next two years.
Redcentric
Share price 192p; PE ratio 18.2; dividend yield 2.3%
Investors fell in love with IT company a few years ago, and the shares have risen steadily since. Its customers - including King's College Hospital, and central government departments - keep coming back for more, which is why 81% of revenue is now recurring or predictable income.
Customers are expected to spend more with the shift to so-called sales-as-aservice (SaaS), which generates regular revenue over a number of years. Earnings are tipped to grow by an average of over 21% for at least the next two years.
Speculative income
Direct Line
Share price 405p; PE ratio 14.2; dividend yield 8.6%
management is busy implementing the European Union's Solvency II insurance regulatory regime, initially on a standard model basis. It's no more onerous than the current regime, which the insurer already exceeds. That's why a big special dividend, based on excess capital, looks highly probable in March, with another in the summer after a planned move to a less capital-intensive internal model.
Royal Dutch Shell
Share price 1,515p; PE ratio 10.6; dividend yield 8.3%
Its proposed $70 billion acquisition of will steal the limelight, but ultra-reliable dividend deserves headlines too.
The oil major hasn't cut the payout since the Second World War, and dividends have shown compound growth of an inflation-busting 5% since 1989. But Shell must sell $30 billion of assets by 2018, and slash capital expenditure, too. If it does, the dividend looks secure, while a share price near five-year lows factors in a lot of pain.
Taylor Wimpey
Share price 197p; PE ratio 11.3; dividend yield 5.6%
had an "excellent" summer selling season, leading to a record order book, a big increase in margins and a doubling of net cash. Favourable industry trends should deliver another big increase in profits in 2016.
Management is already committed to a £300 million special dividend in July worth about 9.22p per share, subject to shareholder approval at the annual general meeting. If the regular "maintenance dividend" is included, the shares offer a knockout yield.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.