In today’s article I’m going to look at three very different stocks I believe could beat the wider market in 2016.
Centamin
Shares in Egyptian gold miner Centamin (LSE: CEY) have already rocketed 40% higher this year. This sharp rise has been the result of gold rising by 15% to $1,245/oz. since the start of 2016.
Are further gains really possible for Centamin? The miner’s full-year results suggest to me that there could be more to come.
Centamin’s gold production rose by 16% to 439,072 ounces in 2015, while the firm’s all-in sustaining cost of mining fell from $912/oz. to $885/oz. Cash operating costs fell from $729/oz. to $713/oz.
Centamin has no debt and net cash rose to $199m last year. The group doesn’t hedge its gold production. This means that the rising gold price should be reflected directly in Centamin’s profits and free cash flow.
Dividend payments are based on free cash flow. The group declared a final dividend of 1.97 US cents per share today, taking the total 2015 payout to 2.94 cents, or around 2.05p. That gives a 2.2% yield at today’s price, but I’d expect further increases in 2016.
Next
Shares in high street fashion retailer Next (LSE: NXT) have fallen by nearly 10% so far this year. The fall to 6,550p has pushed the share price down below the group’s price limit for share buybacks. Historically periods of price weakness like this have been a good buying opportunity for Next investors.
The shares now trade on a fairly reasonable forecast P/E of 15. Analysts are forecasting a total dividend payout — including special dividends — of 327p for the 2016/17 year, which gives a chunky 5% forecast yield.
However, I would treat this figure with caution. Next allocates surplus cash to share buybacks or special dividends. The size of any special dividends will depend how much cash is spent on buybacks. It’s not yet possible to predict this but I’d argue that in either case, the shares look reasonable value.
We’ll find out more about Next’s plans for shareholder returns in 2016/17 when the group’s results are published on Thursday. In the meantime, I rate Next as a buy.
SSE
Big utilities went out of fashion last year, as the market feared dividend cuts and falling earnings as a result of falling energy prices. However, with the exception of Centrica, investors’ concerns seem to have been overblown.
SSE (LSE: SSE) appears to be on course to continue to meet its objective of increasing the annual dividend in line with inflation. Adjusted earnings are expected to be “at least 115 pence” in 2015/16 and the dividend is expected to rise to 89.9p. This gives a forecast yield of 6.1%.
In my view, this stock remains a solid long-term buy for income. It’s also worth remembering that if the 6% yield can be maintained, very little share price growth will be required for the shares’ total return to beat the long-term stock market average of about 9%.