Will BAE Systems plc, Investec plc And Tullow Oil plc Sink Or Swim In 2016?

Should you buy these 3 stocks right now? BAE Systems plc (LON: BA), Investec plc (LON: INVP) and Tullow Oil plc (LON: TLW)

| 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.

sdf

The defence sector has endured a troubled number of years with austerity and defence cutbacks across the developed world reducing demand for its products. One company that has seen its profitability growth rate stall somewhat is BAE (LSE: BA), with its bottom line falling by 10% last year and being due to decline by another 1% in the current year.

But looking ahead to 2016, BAE is forecast to report a rise of 5% in its earnings. This has the potential to significantly improve investor sentiment in the stock. It may not be an impressive rate of growth but it shows that BAE could be at the start of a turnaround. As such, its current price-to-earnings (P/E) ratio of 13.1 holds considerable appeal and as we move through 2016, it could head upwards.

In addition, BAE’s shares also offer an excellent income return. They yield 4.2%. With the company having growth potential over the medium term as the developed world’s economic performance improves, it seems likely that its investors will receive an above-inflation income rise in 2016 and beyond. Therefore, now seems to be a good time to buy a slice of the business for the long term.

Should you invest £1,000 in BAE Systems right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BAE Systems made the list?

See the 6 stocks

South Africa exposure

Also enduring external challenges is Investec (LSE: INVP), with its shares being highly volatile of late due to fears about the future of the South African economy. Clearly, Investec’s large exposure to South Africa means that its share price performance is closely linked to what happens in that country. While this risk is relatively significant, Investec’s current valuation appears to take it into account and provides a sufficiently wide margin of safety to merit investing for the long term.

For example, Investec trades on a forward P/E ratio of just 9.1 and, with the company’s shares having a forward yield of 5.7%, they also offer superb income prospects. While further volatility seems relatively likely, long term investors who can stomach major share price movements in the short run appear to be likely to earn high rewards in 2016 and beyond.

Medium term opportunity

Meanwhile, the falling oil price has been a major drag on Tullow Oil’s (LSE: TLW) financial performance in recent years. For example, it made a loss of $2bn last year and its shares have fallen by 58% in the last year.

Despite this, Tullow has considerable medium term potential. Certainly, the price of oil could come under further pressure, but with Tullow set to vastly increase its production next year when the TEN development project is due to come onstream, its profitability is set to rise at a rapid rate. In fact, Tullow’s earnings per share are forecast to be 851% higher in 2016 than in 2015 and as a result, its shares trade on a price-to-earnings growth (PEG) ratio of only 0.2. This indicates that a sufficiently wide margin of safety is on offer, even though Tullow Oil remains a very volatile investment opportunity.


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 BAE Systems. The Motley Fool UK has recommended Tullow Oil. 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

Rolls-Royce's Pearl 10X engine series
Investing Articles

The Rolls-Royce share price has soared 66% already this year! Can it really keep going?

Even after a stunning few years, the Rolls-Royce share price has soared by two-thirds already this year. Our writer revisits…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Spare £5k? Here’s how long it would take to generate a second income of £5k every year!

Christopher Ruane explains the maths behind building a second income from dividend shares, as well as some of the opportunities…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

As the FTSE 100 hits an all-time high, is it too late to get in on the boom?

The FTSE 100 index of leading British shares hit a new all-time high in the past week. Our writer explains…

Read more »

Close-up of British bank notes
Investing Articles

3 shares to consider for long-term passive income

Christopher Ruane thinks investors on the hunt for passive income streams should consider this diverse trio of dividend-paying shares.

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

Here are the latest dividend yield forecasts for Legal & General, Aviva, and M&G shares

If someone’s looking for high dividend yields on the London Stock Exchange, these three Footsie financial stocks are definitely worth…

Read more »

Pakistani multi generation family sitting around a table in a garden in Middlesbourgh, North East of England.
Growth Shares

Up 68% but still yielding 7.1%, I’ve been loading up on Aberdeen shares

The FTSE 250 is loaded full of great businesses with significant growth potential. This writer believes Aberdeen shares to be…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

Is the Vodafone resurgence on, as results and a buyback boost the share price?

The Vodafone share price has been ticking up in 2025. Is that a sign the company's bold restructuring plans are…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

The Legal & General share price is rising. Will it soon be too late to bag big dividends?

The Legal & General share price has had an unremarkable decade, but it currently has one of the Footsie's biggest…

Read more »