Will BT Group plc, Burberry Group plc And ITV plc Beat The Footsie In 2016?

Are these 3 stocks on the cusp of stunning returns? BT Group plc (LON: BT.A), Burberry Group plc (LON: BRBY) and ITV plc (LON: ITV)

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2015 has been an important year for BT (LSE: BT-A). That’s because it has made major progress with its strategy to become a major quad play operator. For example, it has been hugely successful in adding new customers to its superfast broadband offering, has agreed to purchase the UK’s largest mobile network, EE, and has continued to make inroads into the pay-tv market via improved content on its BT Sport channel.

As a result of this, BT’s share price has risen by 23% since the turn of the year and has easily beaten the FTSE 100, which is down 3% year-to-date. However, the company may not continue to outperform the wider index, since its current strategy is relatively risky and may cause investor sentiment to come under pressure. For example, BT’s balance sheet has a large pension liability as well as a sizeable debt pile; both of which make its investment in EE, pricing and in sports rights rather risky.

Furthermore, BT trades on a price to earnings (P/E) ratio of 16.2, which hardly screams value. And, even though it is growing in size, its bottom line is forecast to rise by 7% next year, which is roughly in-line with the wider market. As such, there may be better opportunities elsewhere.

One stock which has struggled in 2015 is Burberry (LSE: BRBY). Its shares are down by 25% since the turn of the year and the main reason for this is a slowdown in demand for the company’s products in China. Looking ahead to next year, this slowdown could continue and, with Burberry’s earnings expected to grow by just 5% next year, it may struggle to outpace the FTSE 100.

However, looking beyond next year, Burberry has considerable appeal. It remains a highly desirable brand with a relatively high degree of customer loyalty. This should allow pricing increases to take place which would boost profitability, while the company continues to have diversification potential to increase its status as a true lifestyle brand. And, with the key US economy continuing to grow at a rapid rate, Burberry may switch its growth strategy toward developed markets and this has the potential to boost sales and investor sentiment over the medium to long term.

Meanwhile, ITV (LSE: ITV) has posted a share price rise of 24% in 2015 and a key reason for this is an improving UK economy. With the UK growing by 2.9% last year and scheduled to grow by 2.4% this year, it has been among the fastest growing nations in the developed world and this has caused advertising spend to rise. This, coupled with improved content, has allowed ITV to increase its bottom line by 23% in each of the last two years and, with further growth of 16% forecast for this year and 10% expected in 2016, the company continues to be a strong growth play.

Even though its shares have risen significantly this year, ITV trades on a price to earnings growth (PEG) ratio of just 1.5. As such, and while the potential privatisation of Channel 4 is a cloud on the horizon, ITV looks set to beat the FTSE 100 in 2016 and beyond.

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 Burberry and ITV. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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