Today, I’m looking at three very different companies and analysing whether they will outperform the market in the long term. All three stocks are trading lower than last year, so is now the time to buy or avoid? 

Banking major

Lloyds  (LSE: LLOY) first quarter results were really quite encouraging, despite the muted share price reaction. Underlying profit was up to £2.1bn and tangible net assets per share moved in the right direction, too. The company is taking advantage of the healthy UK economy and the dividend yield is set to increase to 7.5% next year.

The company also trades on a  price-to-earnings (P/E) ratio that is some distance below its peers in the UK banking sector. But there are still a few risks for Lloyds in the not too distant future — PPI liabilities have been hanging over the sector for years and could grow further.

The main risk this summer is the EU referendum in the UK on 23 June. If the UK votes to leave the EU then Lloyds shares could tumble over the uncertain future of the UK economy. 

Heavily shorted 

Carillion  (LSE: CLLN) is the most shorted stock listed on the London stock exchange. The short interest in the stock is a whopping 19.9%, with no less than 15 hedge funds holding a position. The construction and facilities management company pays out a big dividend and the yield currently sits at 6.5%.

The P/E ratio is also under 10 which should indicate the company is a bargain. But its lack of profit growth and growing debt is a worry. However, the UK is economy growing steadily and there are lots of projects in the pipeline for Carillon. It might be a steal at these prices and the high yield may make it a good addition to an income portfolio. 

Telecommunications giant

BT Group (LSE: BT) released some impressive results at the start of May. The headline figure was profit before tax up 9%, but earnings per share was also up 5%, and there was a 13% dividend increase. These were the first results after the EE acquisition, with BT’s CEO later adding that the EE combination will add more synergies than initially expected.

BT has also begun offering a ‘quad play’ service, which is highly profitable and should help the company grow  its cash flows long into the future. 

The pension deficit of £5.2bn (net of tax) is a worry for BT and is something that investors should be monitoring closely. The Openreach situation is another worry for the company, and although Ofcom didn’t force BT to spin off Openreach in its latest review, many people believe it will have to happen at some point. Openreach contributed over a third of BT Group’s profits, so the company will obviously want to hold onto this subsidiary as long as possible. 

All three stocks have good long term prospects, but all face significant headwinds in the next few years. Investors willing to take the risk may be rewarded if the problems are overcome and long-term potential is fulfilled. 

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Jack Dingwall has no position in any shares mentioned. 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.