3 Stocks I’d Buy Ahead Of Vodafone Group plc: 3i Group plc, Burberry Group plc And GKN plc

For Vodafone (LSE: VOD) (NASDAQ: VOD.US), the improving long-term outlook for Europe is hugely positive. Certainly, there are short term challenges in terms of a potential Grexit (and maybe even a Brexit), but with quantitative easing now being implemented and the global economy continuing to improve, the outlook for the single currency region is more positive than it was a year ago.

As such, Vodafone’s share price has risen by 18% in the last year, as investor sentiment has improved dramatically. Furthermore, Vodafone is expected to grow its bottom line by an impressive 15% next year which, alongside a yield of 5.1%, marks it out as a strong growth as well as income play.

Other Opportunities

While I’m bullish on Vodafone’s long term prospects, there are a number of stocks that I would buy ahead of it. Chief among them is private equity company, 3i (LSE: III), which offers superb value for money at the present time. For example, 3i trades on a price to earnings (P/E) ratio of just 9.2 and, while its bottom line is expected to fall by 21% in the current year and by a further 5% next year, its margin of safety appears to be sufficiently wide to still offer upside over the medium to long term.

Of course, 3i is not the most stable of companies and, looking back at its track record over the last five years, it has slipped into loss-making territory in one year but has also delivered annual growth of as much as 43% in 2014. And, encouragingly for its investors, the overall trend during the period has been up, with earnings per share expected to be 55.9p next year, versus just 19.6p in 2011, which shows that in the long run an upward rerating to its valuation is very much on the cards.

Meanwhile, the last three months have been very tough for Burberry (LSE: BRBY), with the fashion designer revising downwards additional income from FX tailwinds. As such, the company is expected to post growth of just 3% in the current year, although next year is set to see a marked improvement, with growth of 11% being pencilled in.

Of course, lower than expected profitability is a disappointment, but currency headwinds are par for the course for an international stock such as Burberry, while slower than expected demand from Asia is unlikely to last over the medium to long term – especially with China set to further lower interest rates moving forward. As such, Burberry’s recent dip in share price represents a great opportunity to buy a slice of it.

The present time is also a great moment to add global engineering company, GKN (LSE: GKN), to your portfolio. With global demand for cars and aeroplanes on the up due to an improving outlook for the global economy, GKN looks set to benefit and is expected to deliver earnings growth of 10% next year. Despite this, it trades on a price to earnings growth (PEG) ratio of just 1.2, which indicates that it offers growth at a very reasonable price.

Furthermore, GKN has a sound balance sheet, impressive cash flow and an upbeat long term growth strategy and, while its shares have disappointed in the last year (being down 4%) they could be an excellent long term performer.

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Peter Stephens owns shares of 3i Group and Burberry. 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.