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3 Tips For Your 2015 ISA: National Grid plc, Reckitt Benckiser Group Plc & Shire plc

National Grid (LSE: NG), Reckitt Benckiser (LSE: RB) and Shire (LSE: SHP) are three shares that you certainly ought to consider for your 2015 ISA. Alternatively, I am tempted to suggest the inclusion of one stock between Glencore (LSE: GLEN) and Royal Bank Of Scotland  (LSE: RBS) instead of Reckitt, but that comes with caveats.

National Grid: Get Your Share Of Success!

National Grid is not having the best of times: regulatory hurdles and political risk weigh on its valuation, but weakness in its share price renders National Grid particularly attractive.

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This national champion, with total assets of £52bn, is nicely priced at 16 times forward earnings. High dividend yields at many of its rivals signal risk, but National Grid’s market-beating forward yield of 4.8% is sustainable, in my view.

I don’t fancy its balance sheet, but high net leverage above 4 times is not unusual among utilities in the UK and across Europe, and I doubt it will become a real problem because National Grid’s core profitability will certainly hold up better than that of others, and its 2.7% core free-cash-flow yield has been rising since 2013, which is one element I particularly like.

In spite of political risk stemming from the elections in the UK, I’d buy the shares ahead of full-year results, which are due on 21 May. I reckon National Grid will likely surge to 1,020p in the next three quarters, for an implied upside of 15%. 

Reckitt & Shire: Solid Buys 

Reckitt and Shire are two obvious picks for your 2015 ISA. Reckitt’s fundamentals are strong, and its management team alone deserves a valuation of 25 times forward earnings! Moreover, this is a ‘bond-like’ stock that may fare incredibly well in any market conditions. 

Overpriced? I hear you.  Well, even in recent months, during which many investors have argued that Reckitt was way too expensive, it has been a catch-up game with estimates from analysts. The shares are up 15% year to date. 

The average price target from brokers has risen to £58 now from £46 in the third quarter of 2013, but top-end estimates place a value of £70 on Reckitt’s stock, for an implied upside of 18% from its current level.

I think bullish estimates may well be right this time, and I would not be surprised if the dividend (2.1% forward yield) rose more swiftly in the next 18 months than in the past couple of years. 

The Shire investment case is not too different from Reckitt, really. Its management team has shown that big paper losses from a huge aborted deal (read: AbbVie) don’t really matter when senior executives have a clear corporate strategy in mind.

Now most analysts have pencilled in a price target that is in line with Shire’s current valuation of £56 a share, but higher forecast margins and plenty of flexibility with regard to its dividend policy make it a particularly enticing value proposition.

Upside from earnings also comes from recent deal-making, and at 24 times forward earnings, the stock simply deserves the price it fetches on the market. 

Royal Bank Of Scotland & Glencore: Not For The Faint-Hearted

Perhaps you agree with investment guru Neil Woodford, and you think that Reckitt will deliver diminishing returns over time. Then, RBS and Glencore could push up the return profile of your investment, but you must love and embrace risk in order to add either stock to your portfolio. 

RBS is not a “macro play”, it’s a restructuring story that doesn’t offer any income but promises capital gains if management executes on their promises. Its balance sheet is getting better, and its valuation renders it an appealing buy if you believe the banking sector will continue to rally as it has done in recent times. I am not sure that’s the case, and uncertainty surrounding interest rates may weigh on banks’ stocks more than investors think, however.

Elsewhere, Glencore is a classic buy if you believe that the global economy will recover at a faster speed than most economists forecast. China isn’t doing great, but hey, with gross domestic product still growing at an annul rate of 7%, it’s not exactly a troubled economy!

As usual, the problem lies with high expectations for growth in emerging markets, and the bears do not expect anything good coming from the Far East in the next few quarters. If they are wrong, though, Glencore will start gathering momentum and will appreciate fast, given that it currently trades at a lowly 15 times forward earnings. 

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Alessandro Pasetti has no position in any 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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