2015 has been a rather disappointing year for investors in Aviva (LSE: AV). The insurer’s shares have risen by 4% this year which, after their 8% rise of 2014, is rather lacklustre. A key reason for the halving of their growth rate is concern among investors regarding the merger between Aviva and Friends Life which is set to result in a dominant player in the life insurance market. The challenge for investors though is that such large mergers can lead to integration challenges.
On this front, however, Aviva appears to be making excellent progress. Its recent update highlighted that the two companies are on track in terms of logistics and benefits regarding synergies compared to the initial plan for the acquisition. As such, it would be of little surprise for Aviva’s shares to increase in value at a faster rate in 2016 as investor sentiment has the potential to rise at a brisk pace.
Furthermore, with Aviva forecast to increase dividends per share by 15.5% next year, it is set to become a hugely enticing income stock, with its yield due to be 4.8% next year. With interest rates unlikely to rise in the UK until the second half of next year, Aviva’s price to earnings (P/E) ratio of 11.5 could expand rapidly in 2016.
Also having a difficult 2015 is Santander (LSE: BNC), with its shares falling by a whopping 35% since the turn of the year. A key reason for this is difficulty within the Brazilian economy, which is one of the bank’s major markets and is therefore dragging down its profitability. In fact, looking ahead to next year, Santander is forecast to increase its bottom line by just 6% which, while roughly in-line with the wider market, represents a downgrade from previous guidance.
Despite this, Santander remains a very enticing long term buy. Certainly, 2016 could prove to be another tough year for the bank as the Brazilian economy may endure further negative growth. However, with its shares trading on a P/E ratio of only 10, there is considerable upward rerating potential. Furthermore, with Santander having a yield of 3.9% from a dividend which is covered 2.5 times by profit, it is now a very appealing income play.
Meanwhile, 2015 has been an excellent year for wealth manager St James’s Place (LSE: STJ), with the company’s share price rising by 22% since the turn of the year. Looking ahead, further strong growth could lie ahead in 2016. That’s despite its earnings per share being forecast to fall by 18% in the current year and its shares trading on a relatively high P/E ratio of 34.5 at the present time.
The reason for its capital gain potential is that St James’s Place has very upbeat growth forecasts, with the company’s bottom line due to rise by 31% next year. This puts it on a price to earnings growth (PEG) ratio of only 1.1, which indicates that its shares offer growth at a reasonable price. Moreover, with a dividend that is set to rise by 16% next year, St James’s Place has real income potential and could be a worthy purchase for the long term.
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Peter Stephens owns shares of Aviva. 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.