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Why AstraZeneca plc, RWS Holdings plc And Pennon Group plc Are Set To Beat The Index

Shares in translation specialist RWS (LSE: RWS) have soared by up to 19% today after the company’s full-year performance beat expectations. Following a flat first half of the year, the second half showed a much improved performance for RWS, with its top line increasing by 10% versus the first half of the year. As a result, sales for the full year will be 2% higher than for last year, which is a better performance than had been priced in.

The improved performance is mainly due to organic growth across the company’s activities, with strong results from the core patent translation services. This division benefitted from the conversion to sales of clients won in earlier periods as well as a spike in patent applications arising from the 2011 America Invents Act.

Encouragingly, RWS has a net cash position and, looking ahead, it has an active acquisition strategy and a progressive dividend policy. As such, and with it operating within a niche area, its shares appear to be worth buying for further capital growth as well as for their diversification potential.

Similarly, water services company Pennon (LSE: PNN) also looks set to beat the index over the long run. It offers a very appealing mix of income and growth potential, with it currently yielding 4.2% and being forecast to increase dividends per share by almost 7% next year. And, with Pennon having grown its shareholder payouts at an annualised rate of 6.5% during the last five years, investors in the company should be reasonably confident that dividend growth will exceed inflation over the long run.

In addition, Pennon is also due to increase its earnings by 11% next year, which proves that utility companies can hold their own when it comes to increasing profitability. And, with the market being somewhat nervous regarding the liberalisation of the water services market in 2017, Pennon appears to be trading at a discount to its intrinsic value. It currently has a price to earnings growth (PEG) ratio of 1.8 which indicates that it is a buy.

Meanwhile, AstraZeneca (LSE: AZN) has been rather disappointing in 2015, with its shares underperforming the FTSE 100 by 6% since the turn of the year. A key reason for this is the erosion of the bid premium which had been priced in during recent years, with Pfizer making multiple bids for the business prior to the proposed closure of a US tax loophole.

Of course, a bid is still possible. AstraZeneca continues to invest in a rapidly improving pipeline which is markedly different to that of even a few years ago. And, with the company having excellent cash flow and a sound balance sheet, it remains a potential bid target – especially since a number of major pharmaceutical companies are struggling to grow their sales at the present time. Trading on a price to earnings (P/E) ratio of just 15, AstraZeneca seems to offer excellent upward rerating potential thereby making it a strong buy at the present time.

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