With our new ISA allowance of £15,240 set to come into force on 6 April (and not long left to use up the old allowance), I’ve been looking for promising candidates. With cash ISAs offering so little these days, there are plenty of shares that should do better. Here are three:
Vodafone
I confess to being a bit uncertain about Vodafone (LSE: VOD)(NASDAQ: VOD.US) in the short term, as it’s going through a transitional period. Revenues from old-fashioned mobile phone services are drying up in the developed world, while 4G networks are still some way from completion and a long way from maximum usage — although in its quarterly update for December, Vodafone told us it had 4G available in 18 markets with 13.7 million customers.
During the transition, EPS is set to fall and push the P/E up to over 30, but Vodafone looks set to maintain its dividend yield at more than 5% on a 219p price. If it keeps that up, it would represent a return of £792 in cash from an ISA full of Vodafone, compared to around £240 from the best cash ISA.
Prudential
It can be a good idea to have some safe stocks in your ISA, and they don’t come much safer than Prudential (LSE: PRU). Prudential has kept its dividends modest and very well covered, and avoided becoming overstretched during the crisis — and dividend rises have been consistently above inflation, even if yields are relatively low at around 2.5%.
On top of that, the shares have climbed 24% in the past 12 months to 1,670p, and have more than trebled in five years. Even after that, we’re looking a likely P/E this year of a little over 15, falling to about 13.4 based on 2016 forecasts — along with more double-digit gains in earnings and inflation-beating dividend rises.
The only disappointment is that the Pru is losing its excellent CEO, Tidjane Thiam, who is set to join Credit Suisse — but the prudent culture he leaves behind is unlikely to change.
Tullow
How about looking for long-term oil bargains while the plunging price of the black stuff is keeping share prices low? Tullow Oil (LSE: TLW) shares have slumped 62% in the past 12 months to 298p, with only very modest earnings forecast for this year, after the 2014 final dividend was suspended. But at year-end, chief executive Aidan Heavey told us that the firm’s strategy of cutting costs and diversifying its debt funding will “provide us with substantial headroom and liquidity to deliver on our strategy“.
Analysts appear convinced and expect EPS to nearly double in 2016, taking the P/E to around 16.5, and there’s a three-to-one ratio of Buy to Sell recommendations out there. I reckon Tullow can easily ride out cheap oil, and we should see earnings rising in the next few years.
