Are National Grid plc, Derwent London plc and Daejan Holdings plc on track to beat the FTSE 100 in 2016?

Should you buy these 3 stocks right now? National Grid plc (LON: NG), Derwent London plc (LON: DLN) and Daejan Holdings plc (LON: DJAN).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in National Grid (LSE: NG) have outperformed the FTSE 100 by over 11% since the turn of the year and further outperformance is on the cards. A key reason for that is National Grid’s consistency and its robust business model, which is less positively correlated to the performance of the wider economy than is the case for most of its index peers.

With uncertainty being high among investors and the outlook for the FTSE 100 being uncertain for the remainder of 2016 due to the EU referendum and US election, National Grid is likely to hold great appeal for nervous investors moving forward. And with its shares having a low beta of just 0.6, it’s likely to offer less volatility in future months.

Although National Grid’s price-to-earnings (P/E) ratio of 15.7 may appear to be rather high compared to the wider index, for a utility with relatively low risk it seems to be highly appealing. In fact, an upward rerating may be on the cards – especially since National Grid yields 4.5% and is likely to raise dividends at a higher rate than inflation over the medium-to-long term.

Overpriced shares?

While National Grid has beaten the FTSE 100 year-to-date, shares in real estate investment trust (REIT) Derwent London (LSE: DLN) have underperformed the wider index by 8%. A key reason for that is uncertainty surrounding the UK property market, with Derwent’s focus on London being particularly negative in this regard. That’s because after years of rises, there’s a real fear among investors that London property prices have overheated and are now due a pullback.

Furthermore, with the UK economy also having an uncertain future due in part to the potential for a Brexit, Derwent’s share price could continue to disappoint in the near term. Looking further ahead, Derwent’s P/E ratio of 43 indicates that its shares are rather overpriced – even though Derwent’s bottom line is due to rise by 8% this year and by a further 16% next year. Therefore, while it may have a bright long-term future, Derwent could struggle to beat the FTSE 100 this year.

The London issue

Meanwhile, shares in commercial and residential property investment company Daejan (LSE: DJAN) have fallen by 11% since the turn of the year. That’s due to the same reason as Derwent, with Daejan being focused on the Greater London area and having significant residential assets. While this has been a positive in recent years due to London house price growth, in future it could be a problem.

However, with Daejan trading on a price-to-book (P/B) ratio of only 0.7, it seems to offer excellent long-term value for money. Certainly, there’s scope for its net asset value to fall if house prices fall, but there seems to be a wide margin of safety on offer, which makes it a sound long-term buy. But in terms of outperforming the FTSE 100 in 2016, this seems more uncertain as investor sentiment may remain weak in the coming months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of National Grid. 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »