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Why AstraZeneca plc, Pennon Group plc And Talktalk Telecom Group PLC Are 3 Of My Favourite Stocks!

Today’s update from water services and waste management company Pennon (LSE: PNN) is encouraging and shows that the company is on-track to meet full-year expectations. Notably, its waste management business Viridor is contributing significantly to profitability, with its energy recovery facilities delivering impressive levels of growth.

Although Pennon’s South West Water division is set to report a drop in profitability this year as a result of a reduction in base allowed returns as part of the 2014 final determination, it continues to have a bright medium to long term future. Crucially, it appears to be well-placed to benefit from the market liberalisation which is due to take place in 2017, with established retail and wholesale strategies already in place.

While Pennon may not appear to be a strong growth play at first glance due to its being a utility company, its forecasts suggest otherwise. For example, it is expected to grow its earnings by 9% next year, which is ahead of the wider market’s growth rate. And, with a yield of 4.9% in 2016, Pennon could prove to be a very strong performer in the future, following what has been a disappointing 2015 thus far, with its shares down 19% year-to-date.

Also down this year is AstraZeneca (LSE: AZN). Its shares have fallen by 5% and, as a result, this could be a great time to buy them. Certainly, the pharmaceutical industry is enduring a challenging period at the present time, with a number of global players failing to fully offset the declines in sales from the loss of patented drugs. However, this makes takeover activity much more likely, with AstraZeneca’s improving pipeline making it a potential bid target over the medium term.

Even if a bid is not forthcoming, AstraZeneca appears to be well-placed to deliver upbeat growth numbers in the coming years. Its pipeline has become more focused on treatments for conditions which are likely to see increased prevalence in future years, such as diabetes. And, in the meantime, AstraZeneca offers a yield of 4.2% and trades on a very appealing price to earnings (P/E) ratio of 15.6, which indicates that there is upward rerating potential.

Similarly, quad-play operator TalkTalk (LSE: TALK) is also a potential bid target. It is currently ahead of many of its larger peers in terms of having a mobile, broadband, pay-tv and landline offering available to customers, which could appeal to a company wishing to do the same at a faster pace than would be the case through organic growth.

Clearly, TalkTalk remains a very fast-growing company, with its bottom line expected to increase by 66% in the current year and by a further 55% next year. This puts it on a forward P/E ratio of just 15.1 which, for such a fast-growing business, seems to be rather low. Similarly, a yield of 5.4% shows that TalkTalk is more than a just a pure play growth stock, thereby indicating that its total return in 2016 and beyond is likely to be well in excess of the market average.

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Peter Stephens owns shares of AstraZeneca, TalkTalk and Pennon Group. 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.