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3 Stocks With 20% Upside In 2016: Vodafone Group plc, Domino’s Pizza Group PLC And Poundland Group PLC

2015 may have been a disappointing year for the FTSE 100, with the index posting a fall of 5% since the turn of the year. While next year could also be tough, with US interest rate rises and a Chinese slowdown having the potential to negatively affect investor sentiment, a number of stocks are capable of posting 20% returns in 2016.

Chief among them is fast-food company Domino’s (LSE: DOM). Its shares have soared since the turn of the year, with them being up by 47% year-to-date. A key reason for this is the expansion potential which Domino’s offers, with an evolving menu having the potential to not only diversify the company’s offering but to also squeeze non-pizza fast food competitors.

For example, Domino’s now serves a range of chicken dishes which have allowed it to broaden its customer base and, with further additions to its menu seemingly likely, its exceptional growth rate of recent years could continue in 2016 even if the pizza delivery space becomes rather crowded.

In fact, Domino’s is expected to post a rise in its bottom line of 25% in the current year, followed by a further increase of 12% next year. As such, it does not require a major upward rerating in order to deliver 20% returns next year. And, with Domino’s having increased its earnings in each of the last five years, it offers a high degree of consistency which could create additional demand for its shares if the future for the wider index remains relatively uncertain.

Also offering 20% return potential next year is Vodafone (LSE: VOD). Unlike Domino’s, it has struggled in recent years due to a vast exposure to a slow-growth European economy. However, Vodafone’s strategy of focusing resources on Europe in terms of purchasing a number of European assets and also investing heavily in infrastructure across the region could be about to pay off since the Eurozone is likely to deliver an improved performance next year.

In fact, Vodafone’s bottom line is expected to rise by 19% in 2016 and, with the company’s shares trading on a yield of 5.3%, they appear to offer good value for money as well as top notch income potential.

Although the UK economy is undoubtedly in much better shape than it was a few years ago, the appeal of discount stores such as Poundland (LSE: PLND) remains significant to UK shoppers. Evidence of this can be seen in the company’s forecasts, with its bottom line being expected to rise by 50% in the next financial year.

This puts Poundland on a price to earnings growth (PEG) ratio of just 0.3 and, while the current year is expected to produce a fall in the company’s earnings, its long term prospects remain strong. In addition, dividends are due to be covered 2.8 times by profit next year and this means that Poundland’s yield of 2.7% could rise at a brisk pace and act as a positive catalyst on the company’s share price.

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Peter Stephens owns shares of Domino's Pizza and Vodafone. The Motley Fool UK has recommended Domino's Pizza. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.