Is 2016 Time To Buy Into Royal Mail PLC And HSBC Holdings plc?

Looking towards 2016 there are plenty of large corporations that trade at very attractive prices. The FTSE 100 has lost nearly 5% over the course of 2015 and in my opinion there are multiple blue-chip businesses that offer growth potential to match smaller companies in the FTSE 250. Investors are on the hunt for the big stock of 2016 and the two below could offer a good return through 2016 and well into the future. 

A good year, in spite of everything

It’s now over two years since the very popular Royal Mail (LSE: RMG) initial public offering but the shares are under pressure at the moment, net profit is set to fall sharply and there are questions about increased competition. However, I believe that this year has been a positive one for the company. Facing decreasing letter and parcel volumes, its CEO is driving internal cost cutting and over 2,500 jobs have been cut this year on top of the thousands already cut in the past 18 months. Even in the face of obvious challenges, the market reacted positively to full-year results and the shares are in demand with income investors specifically. Royal Mail has a tasty dividend yield of 4.5% which is easily covered at a rate of 1.5. Optimistically the company has broker targets from heavyweight houses such as Goldman Sachs and JP Morgan of over 600p, a full £1 above the current share price. This year the shares are up 8.6% but still remain only slightly up since floatation. 

Supersize me

HSBC (LSE: HSBA) also has very interesting growth prospects and it’s backed up by a supersized dividend. This year the shares are off just over 14% but I believe 2016 will be better for HSBC. The company is heavily focused on emerging markets, which may turn out to be the defining difference to its peers, despite some challenges. Emerging market weakness has been a large problem for the bank but many believe that’s about to change. There were encouraging growth rates released from India last week and if such good growth rates are replicated across other emerging markets then HSBC is in the perfect position to capitalise. It passed the Bank of England’s ‘stress test’ this month too, which adds weight to the investment case. 

The company also has a huge dividend yield of 6%, which is set to grow further in 2016 and beyond due to a number of factors. For one, HSBC is well placed to outperform due to its core business taking place in a growing region of the world. Then there are the regulatory headwinds banks face that are beginning to soften, which will mean investors are more likely to buy banking shares. To add to this, interest rates are likely to increase in the next few months which should lead to greater profitability across all banks. 

The two companies above are examples of FTSE 100 businesses that offer good growth potential and, importantly, are both backed up by solid dividend yields. These companies should be in demand over the course of next year and should be trading at higher prices this time next year.