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3 Growth Picks For 2014: RSA Insurance Group plc, BP plc and HSBC Holdings plc

The year just gone has seen mixed fortunes across the FTSE 100, but we’ve had some notable returns to health with some nice profits for investors. The makeup of the FTSE right now is intriguing in that in addition to the wealth of dividend-payers we’d expect from the UK’s top index, we also have some pretty good prospects for share price growth in 2014.

Here are three that I think should put on the pounds during the year:

RSA Insurance

RSA Insurance Group (LSE: RSA) shares were hit by the rebasing of the company’s dividend — from a yield of 8.7% for the year to December 2012, it was slashed to 5.8% in 2012 and there’s just 4.3% forecast for this year. But with hindsight, dividends had been overstretched for too long while earnings were falling, and the last couple of years of high dividends were barely covered.

RSA shares have also been trashed by alleged irregularities in its accounts in Ireland, which have led to the resignation of Irish chief executive Philip Smith and to an independent enquiry.

We’re looking at a predicted 48% fall in EPS for this year, giving us a P/E of 19 on today’s 92p share price. Forecasts have been downgraded to 2014, too, but still suggest EPS of around 12p per share with a 4.6p dividend — that would give us a P/E of just 7.7 with a dividend yield of 5%. And unless there are further issues unveiled in the ongoing investigation, which seems unlikely, that’s just too cheap.

I expect to see RSA’s share price rebounding nicely in 2014.

BP

What can we say about BP (LSE: BP) (NYSE: BP.US)? Well, the disastrous fallout from the Gulf of Mexico catastrophe really is coming to an end, and if there are any further surprises to come they’ll surely only be small ones.

Total costs have exceeded $40bn and BP has shed a whole load of assets to pay for it all, and the share price has suffered as a consequence. But today the company’s shareholder equity is back up close to 2005 levels, it’s set to record an EPS rise of better than 25% this year to put the shares on a P/E of 10 on the current price of 490p, and forecasts for 2014 suggest a further 15% strengthening in EPS to drop the P/E to 9. Dividends are still rolling in at around 5%.

As it happens, BP is valued only slightly lower than rival Royal Dutch Shell right now, and I think the sector as a whole is due for a rerating — I could see a good 20% or better rise for BP shares in 2014.

HSBC Holdings

And finally, the banks. A couple of years of lip-service to penitence seems to be paying off, and the once-reviled sector is coming in from the cold. Putting aside the bailed-out pair, which have already clawed their way back to respectable-looking valuations, my pick for growth in 2014 comes down to a battle between HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) and Barclays, and I’m going for the former.

Priced at 273p, Barclays shares are on a slightly lower valuation than HSBC — we see forecast P/Es of around 11 for the two banks for 2013, but Barclays drops to 9 for 2014 with HSBC on abut 10.5. But HSBC is expected to recover its EPS more quickly, and it’s offering a better dividend yield of around 5% with Barclays on a predicted 2.4% this year and 4% next.

Together, that makes HSBC my growth pick of the banking sector for 2014.

Finally, it's interesting to see that some of the FTSE's best growth prospects are powered by strong dividends, giving us the best of both worlds -- and dividends can provide a strong cornerstone for any portfolio. If you want to learn how to identify great long-term dividends yourself, have a look at the new Motley Fool report "How To Create Dividends For Life", which gives you 5 Golden Rules for Building a Dividend Portfolio.

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> Alan does not own any shares mentioned in this article.