National Grid (LSE: NG), Bellway (LSE: BWY) and Diageo (LSE: DGE) each beat the FTSE 100 by at least 6% in 2015. Can any of these three firms repeat last year’s successes in 2016?

I’ve been taking a closer look at the numbers to find out more.

National Grid

In addition to beating the FTSE, National Grid also outperformed both SSE and Centrica in 2015. The group’s American business helped diversify its profits. Its lack of exposure to oil and gas prices also helped support earnings.

Trading at well over 900p, I’d argue that National Grid’s shares are not obviously cheap. However, they do offer a reliable, inflation-linked yield of nearly 5%.

Regulated pricing means that National Grid should not deliver any nasty earnings surprises over the next few years. Earnings per share are expected to rise by 6% for the year ending 31 March, before flattening out in 2016/17.

Although the firm’s forecast valuation of 15.5 seems quite demanding for such a low growth stock, I think that demand for the stock’s reliable yield will probably stop the valuation slipping too far.

National Grid’s share price has been rock solid so far this year and the stock remains a long-term income buy, in my opinion.


Housebuilder Bellway lagged most other housebuilding stocks for much of 2015, before putting on a late spurt and ending the year up by 47%.

Valued on a P/E basis, Bellway looks cheap, with a forecast P/E of just 9.5. However, this approach ignores the likelihood that Bellway’s earnings may be close to their cyclical peak.

In my view, a better way to measure the valuation of housebuilders is with their price/book ratio. This provides an indicator of how much profit the market thinks the firm can generate from its land assets. Bellway currently has a P/B of 2.1. This seems quite demanding to me, but is broadly in line with most other large housebuilders.

However, Bellway’s 3.5% forecast yield is considerably lower than those available from firms such as Barratt Developments and Persimmon.

Bellway’s share price has fallen by 9% this year, in-line with the sector average. I’d rate this stock as an income hold for long-term shareholders, but it could fall further. I don’t see a compelling reason to buy.


Shares in drinks giant Diageo ended last year unchanged, despite concerns the emerging market slowdown would dent the group’s profits. So far in 2016, the shares are down by 4% against a wider market drop of 9%.

Over a longer timescale, Diageo still looks mighty. The group’s share price is 45% higher than it was five years ago, while the FTSE is down 5% over the same period. However, with earnings growth having been flat or negative for the last 2.5 years, I think there’s a risk that investors will start to question whether Diageo deserves a P/E rating of 20.

One factor that may help support the share price is Diageo’s 3.2% yield. Although this isn’t especially high, it has generally been covered by free cash flow in recent years. This should make it a pretty safe payout.

Overall, I think Diageo remains a sound investment, but its valuation could slip. This might be a stock to drip feed into your portfolio in order to benefit from any price weakness.

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Roland Head owns shares of SSE and Diageo. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.