Last year was a highly successful year for many investors. The FTSE 100 rose by 17% despite many market participants being wary of the two major political events of the year.
In fact, Brexit caused the FTSE 100 to rise significantly. Many of the index’s constituents report in sterling, but operate mostly abroad. Therefore, weaker sterling should have a positive impact on their future financial performance. Similarly, Donald Trump’s victory in the US election also helped to push share prices higher. Looking ahead to the rest of 2017, here are two shares which could keep that momentum going.
Shares in InterContinental Hotels (LSE: IHG) rose by 14% in 2016, with the company’s improving financial performance being a key factor. Following earnings growth of 10% in 2015, the business was due to report further growth of 12% in 2016. It is expected to follow this up with growth in its bottom line of 15% this year and 10% the year after. Therefore, it seems likely that investor sentiment towards the stock will continue to improve.
In terms of its valuation, there seems to be scope for further capital gains. InterContinental Hotels trades on a price-to-earnings growth (PEG) ratio of just 1.4, which indicates that it offers a wide margin of safety. This could prove essential if the US dollar strengthens as US interest rates rise. While this may hurt the company’s share price performance to some extent, investors appear to have priced this in.
With a dividend payout ratio of just 45%, there seems to be scope for a rapid rise in shareholder payouts. Given inflation has now risen to 1.8%, InterContinental Hotels’ dividend yield of 2.1% may yet prove popular during the course of the coming year. Its dividend growth prospects may be far superior to a number of UK-focused stocks, thereby making it a relatively enticing income opportunity.
Growth at a reasonable price
Also making gains in 2016 were shares in Relx (LSE: REL). The information and analytics specialist recorded a rise of 21% last year, and more gains could be ahead in 2017. While the company currently trades on a price-to-earnings (P/E) ratio of 20.7, this is slightly below its four-year average of 21. As such, a slight upward re-rating could take place.
However, it is the company’s earnings growth outlook which could prove to be the main catalyst in 2017. Relx is due to record a rise in its bottom line of 13% this year, which puts it on a PEG ratio of just 1.6. Furthermore, it reports in sterling and could benefit from a currency tailwind in the coming months.
In addition, Relx offers dividend growth prospects which could make it a sought-after income stock. It may only yield 2.6% at the present time. However, with dividends covered more than twice by profit, they could rise at a rapid rate in future years. As such, the company appears to offer upbeat income prospects as well as growth at a reasonable price.
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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.