Are Aviva plc And John Laing Group PLC Star Buys For 2016?

Infrastructure company John Laing (LSE: JLG) has today released an encouraging pre-close trading update that shows it’s on track to meet its full-year expectations. Total investment commitments to date stand at £170m, which is at the upper end of its £150m-£175m range announced at the interim results stage. Meanwhile realisations to date of £86m compare to a full-year target of approximately £100m.

Looking ahead, John Laing appears to have significant growth potential. That’s because, in the long term, demand for infrastructure is likely to increase as a result of population growth, urbanisation and climate change. And with its shares trading on a price-to-earnings (P/E) ratio of just 7.5, it appears to offer excellent value for money as well as significant upward rerating potential.

Furthermore, John Laing currently yields 3.4% despite paying out just 25% of profit as a dividend. This shows that there’s tremendous income potential from the stock, with dividends due to rise by 21% next year. A key reason for this is the company’s forecast growth rate in earnings of 30% next year, which puts it on a price-to-earnings growth (PEG) ratio of only 0.25. This indicates that buying now appears to be a very sound move and that John Laing not only looks set to benefit from favourable market conditions in the coming years, but also offers a relatively wide margin of safety.

Bright prospects

Also trading on a low valuation is life insurance company Aviva (LSE: AV). Its shares trade on a P/E ratio of just 11.1 which, for a dominant player such as Aviva, appears to be unjustifiably low. Certainly, there are concerns that its merger with Friends Life won’t deliver the level of synergies that were expected at the outset. But with Aviva’s recent update highlighting that the combination is on track and on target, its long term growth prospects are very bright.

As with John Laing, Aviva pays out a rather modest proportion of profit as a dividend. Its payout ratio stands at 47% and over the coming years, it would be of little surprise for this figure to rise. One reason for this is an upbeat earnings growth outlook. Aviva’s bottom line is due to increase by 11% next year and it has the potential to post index-beating performance due to its commanding position within the life insurance space.

Undoubtedly, Aviva has been one of the major success stories within the FTSE 100 in recent years, with it moving from a lossmaking position in 2012 to being highly profitable today. And while its shares have already risen by 32% since the start of 2013, there could be a lot further to go. That’s due to the progress made in integrating Friends Life and the scope for earnings and dividend growth in 2016 and beyond.

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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.