Are Banco Santander SA And Nanoco Group PLC Star Buys For 2016?

Shares in cadmium-free quantum dots and other nano-materials developer Nanoco (LSE: NANO) have been given a boost today by a positive trading update. In fact, they’re 15% higher due to the release of an upbeat statement that will be delivered by the company’s Chairman at today’s AGM.

What’s his headline news? 2016 is set to be a landmark year for the business.

Watch… and wait

Part of the reason for this is a speeding up of the planned transfer of production from the UK to South Korea. A recent trip to the plant indicated that Nanoco will be ready to supply material to meet potential customers’ commercial requirements in the first quarter of 2016.

Nanoco’s newly formed lighting division is making impressive progress too, including the launch of four LED-based product groups as well as the potential for phototherapy products for the cosmetic treatment of skin.

Looking ahead, Nanoco is expected to remain lossmaking in the current financial year, but it clearly has significant long term potential. And while it has a relatively strong balance sheet and the potential for more positive news flow, it may be prudent to wait for further evidence that it’s moving towards becoming a profitable business. So it could be a stock worth watching rather than buying for now.

UK 1, Brazil 0

One stock that appears to be worth buying for the long term is Santander (LSE: BNC). Its financial performance is being dragged down at the moment by an uncertain macroeconomic outlook for the Brazilian economy, which remains a key market for Santander. With the situation looking unlikely to drastically improve in 2016, Santander’s performance in the near term could be somewhat disappointing.

But for long term investors there’s an opportunity to buy a major global bank for a relatively low price. In fact, Santander’s shares have fallen in value by 50% in the last five years and this leaves them trading on a price to earnings (P/E) ratio of just 9.6. This indicates that there’s limited downside – especially with the bank being forecast to report positive earnings growth in both the current year and next year.

Looking ahead, Santander’s position as a global player is likely to smooth out the problems in key markets such as Brazil. With the bank having an increasing reliance on the UK economy, the lack of monetary policy tightening expected for 2016 should help to offset Brazilian weakness. Meanwhile a fundraising conducted in 2014 has strengthened its capital position and should ensure that it remains a relatively resilient operation, even if the outlook for the global economy deteriorates.

Additionally, Santander is now becoming an increasingly appealing income stock. Although dividends were slashed in recent years in order to improve the bank’s financial outlook, shareholder payouts are now covered 2.5 times by profit and this indicates that they’re highly sustainable. And with Santander having a yield of 4.1% it could become increasingly popular in 2016 and beyond – especially with it trading on such a low valuation.

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Peter Stephens has no position in any shares mentioned. 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.