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2 Top Stocks For Your ISA: Rio Tinto plc And Prudential plc

Rio Tinto

2015 is set to be a tough year for Rio Tinto (LSE: RIO) (NYSE: RIO.US), with the iron ore miner forecast to report a 31% fall in net profit, with a declining iron ore price being the major reason. As such, investor sentiment in the stock has declined this year and, while the FTSE 100 is up 1% year-to-date, Rio Tinto’s share price has tumbled by 7%.

However, the longer term still looks bright for Rio Tinto, with the company’s strategy of maintaining high levels of production likely to strengthen its position within the iron ore market relative to its peers. As such, its longer-term profitability should remain relatively robust and, with further Chinese stimulus a distinct possibility, Rio Tinto’s bottom line is expected to grow at a brisk pace; starting with a gain of 21% next year.

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Of course, its recent share price fall makes its valuation even more appealing. For example, Rio Tinto trades on a price to book (P/B) ratio of just 1.5 which, when you consider how dominant its position is within the iron ore market as well as its future profit potential, seems to be a very appealing price to pay. As such, Rio Tinto could make for an excellent addition to your ISA.

Prudential

Although there is undoubtedly a degree of uncertainty surrounding Prudential (LSE: PRU) at the present time, with CEO Tidjane Thiam announcing his departure, it remains a very appealing long-term investment. That’s because it is highly diversified, has an excellent track record of delivering above average growth prospects, and trades on a very appealing valuation.

For example, Prudential has a price to earnings growth (PEG) ratio of just 1.2, which indicates growth is on offer at a very reasonable price, but the company also has considerable income potential, too. In fact, Prudential may yield just 2.3% at the present time, but has a dividend payout ratio of only 36%, which seems rather mean given the stability and maturity of the business. Were Prudential to pay out a higher (but still moderate) 67% of profit as a dividend, it would yield a far more impressive 4.3%. And, with a new CEO set to take the reins, increasing dividends at a rapid rate could become a key strategy moving forward.

As such, over the medium to long term, Prudential could become a top income stock as well as a great growth play, thereby making it a logical choice for your ISA.

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Peter Stephens owns shares in Rio Tinto. 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.

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