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Are AstraZeneca plc, Whitbread plc And Bellway plc Set To Post 20%+ Returns?

Shares in Costa Coffee and Premier Inn owner Whitbread (LSE: WTB) are up by 2% today after it released an upbeat trading update. Sales at Costa rose by 16% in the first half of the year, while Premier Inn’s top line increased by 13% as Whitbread remains on-track to meet full-year expectations. It is also on target to meet its growth plans with regard to store openings for Costa within the next five years as well as increasing the number of rooms at Premier Inn.

With earnings increasing by 14%, dividends per share have risen by 13.1% and, with the company’s second half of the year progressing well, it seems to be in a strong position to post double-digit net profit growth over the medium term.

On the horizon, though, are potential challenges. Whitbread’s highly successful CEO Andy Harrison will leave in two months, while the impact of the government’s new living wage is likely to be relatively large on Whitbread’s cost base, with pricing likely to rise which could hurt demand for its products and services. As such, it may be best to watch, rather than buy, Whitbread at the present time – especially since it trades on a price to earnings (P/E) ratio of 20.1.

Meanwhile, the house building sector is also benefitting from an improved UK economic outlook. Therefore, Bellway (LSE: BWY) appears to be an excellent purchase at the present time, with the company expected to increase its net profit by 15% in the current financial year. And, despite its share price soaring by 330% in the last five years, it still trades on a price to earnings growth (PEG) ratio of just 0.6. This indicates that 20% share price growth is very achievable.

Looking ahead, a potential catalyst for Bellway’s share price could be a hike in its dividend. It presently pays out just a third of its profit as a dividend but, with a loose monetary policy set to stay, it could easily afford to double dividends and retain sufficient reinvestment capacity. Doing so would equate to a yield of 6.8% at its current price, which would be likely to push its shares significantly higher.

Similarly, AstraZeneca (LSE: AZN) also has 20%+ capital gain potential, with its improving pipeline of new drugs set to boost the company’s top line over the medium term. While a degree of this improved performance has already been priced in by the market, the delivery of positive top and bottom line growth could lead to rapidly rising investor sentiment. And, with AstraZeneca trading on a P/E ratio of just 14.9 after its fall of 15% in the last six months, there appears to be significant upward rerating potential over the medium to long term.

Furthermore, with AstraZeneca being highly dependent upon its drugs pipeline rather than the macroeconomic outlook, it offers excellent defensive qualities too. This could prove to be a major asset if the global economy continues to offer significant uncertainty, with AstraZeneca’s beta of 0.9 providing a potentially less volatile shareholder experience moving forward.

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Peter Stephens owns shares of AstraZeneca and Bellway. 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.