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Diageo plc, Sky PLC & Pennon Group plc: 3 ‘Screaming Buys’?

One of the positives of 2015 has been the performance of Sky (LSE: SKY). Its shares are up by 23% since the turn of the year and, looking ahead, it appears to have further capital gains to offer.

Of course, the quad play space is becoming increasingly competitive, with Sky arguably being behind the curve compared to a number of its competitors. For example, BT and TalkTalk already offer landline, broadband, mobile and pay-tv services and this could allow them to benefit from the potential cross-selling opportunities among existing customers. Sky, on the other hand, is slowly moving into mobile and, with the BT Mobile and EE combination set to become the biggest mobile company in the UK, it may find it rather challenging to make an impact on the mobile sector.

That said, Sky’s current formula seems to be working well, with its recent update being slightly ahead of expectations and showing that it is successfully winning new customers. This, plus its combination with Sky Deutschland and Sky Italia, provides the company with a sound long term growth platform. And, with Sky’s bottom line forecast to rise by 13% next year and the company’s shares trading on a price to earnings (P/E) ratio of 17.5, it could be a sound purchase at the present time.

Similarly, water services company Pennon (LSE: PNN) also appears to be worth adding to Foolish portfolios. Certainly, its growth potential lags that of Sky, but with the outlook for the global economy being relatively uncertain, market sentiment towards more stable, resilient assets such as water companies could increase and push Pennon’s share price higher.

Looking ahead, the liberalisation of the water services market is a potential threat on the horizon. But, with Pennon seemingly well-positioned to cope with the major changes to the supply of water services in the UK, it appears to be a sound buy. Plus, with interest rates unlikely to be any higher than 1.3% by the end of 2018 according to market consensus, the acquisition appeal of infrastructure assets remains relatively high and this could lead to significant capital gains on top of Pennon’s 4.1% yield.

Also offering long term growth potential is Diageo (LSE: DGE). It has struggled in recent months with disappointing sales numbers from emerging markets acting as a brake on its top and bottom line performance. However, with demand for premium spirits likely to increase as the wealth of individuals in emerging markets grows and the developed world shows sign of improved economic performance, Diageo appears to be well-positioned to continue the run which has seen its share price rise by 10% in the last three months.

As with Pennon, Diageo remains a viable acquisition prospect for a rival. That’s because its assets are highly appealing, with the likes of Smirnoff and Johnnie Walker holding considerable future economic benefit. As such, and while its shares are hardly dirt cheap as evidenced by their P/E ratio of 21.5, Diageo appears to be worth buying for the long term.

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Peter Stephens owns shares of Pennon Group and TalkTalk Telecom Group plc. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.