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3 Stocks With 20%+ Return Potential? CPP Group Plc, National Grid plc, Anglo American plc

As all investors know, having a diverse mix of companies within a portfolio can make a huge difference to long term returns. That’s at least partly because it allows stronger performing stocks to pick up the slack from others which are disappointing, with returns being a lot less volatile than if an investor were to focus on a small number of stocks.

Clearly, the benefits of diversifying outside of the mining sector have been all too evident of late, with the likes of Anglo American (LSE: AAL) posting severe share price falls. In its case, a slump of 53% has been recorded in the last year alone with regard to its valuation but, looking ahead, it could easily make up such a large fall.

A key reason for this is its strategy of restructuring the business and, more specifically, selling off assets which offer relatively high risk and relatively low returns. This should help to rebalance the company’s asset base towards more profitable areas, and allow efficiencies to be more easily generated. And, while Anglo American is due to record a fall in its net profit of 49% this year and 19% next year, it remains highly profitable, yields 6.7% and trades on a price to book value (P/B) ratio of only 0.4. As such, gains of 20% are very achievable over the medium term.

Similarly, National Grid (LSE: NG) could see its share price rise by a fifth moving forward. Certainly, investor sentiment may be held back somewhat due to planned interest rate rises which could hurt investor sentiment in highly indebted companies such as National Grid. But, realistically, monetary policy is unlikely to tighten at a brisk pace – especially since the global economy continues to battle with deflation.

In fact, the outlook for National Grid could become more positive the worse the macroeconomic outlook becomes. That’s because it continues to be one of the most appealing defensive stocks in the FTSE 100 and, with it trading on a price to earnings (P/E) ratio of just 15.8, there is upward rerating potential at a time when many of its utility peers have much higher ratings. And, of course, National Grid’s beta of 0.78 means that in the short run its shares should offer a less volatile shareholder experience, too.

Meanwhile, credit card insurer CPP Group (LSE: CPP) continues its stunning performance since the turn of the year, with the company positing a double-digit gain today and making it a rise of 230% since the turn of the year. A key reason for this has been the company upgrading its guidance for 2016, with its half year results showing that encouraging progress has been made. And, with its transformation plan seemingly on-track, it would be unsurprising for its improved financial performance to continue over the medium term.

Certainly, it could be argued that profit taking will hold the company’s share price back after such strong gains but, after a successful debt restructuring and with CPP having a clear growth strategy, investor sentiment could warm sufficiently to add another 20% to its valuation.

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Peter Stephens owns shares of Anglo American and National Grid. 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.