4 stocks that could outperform in FY16

Stocks like Retail Food Group (ASX:RFG) and QBE Insurance Group (ASX:QBE) are well positioned to outperform in FY16.

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It was a pretty disappointing FY15 for most investors with the S&P/ASX 200 Index (ASX:XJO) (Index:^AXJO) rising by only 1.2%. The return was substantially better when dividends are taken into account with the accumulation index rising by 5.7% for the financial year.

Although this would seem a reasonable result compared to the current cash returns, most investors would have loved to see some capital gains. It is important to remember that the index is representative of 200 companies – some outperformed and some underperformed, so investors who have a portfolio of outperformers would have obviously achieved a better return.

Here are four companies I think could outperform in FY16:

1. QBE Insurance Group Ltd (ASX: QBE) – The global insurer looks like it may have finally turned the corner after several years of disappointing results. QBE's insurance margin is increasing and the lack of natural disasters means QBE should meet its earnings guidance. It is also investing a greater percentage of its cash assets in growth investments and management has already stated that the net investment return will be well ahead of previous years if there are no major economic shocks. Rising US interest rates will also provide QBE with better yields on its government bonds and be a tailwind for earnings moving forward.

2. Retail Food Group Limited (ASX: RFG) – Investors in Retail Food Group had a mixed FY15. The share price increased from around $4.50 all the way to $7.85. The share price then fell sharply to $5.50 following the announcement of a non-cash impairment and a short-term increase in cash costs. While this was disappointing, management also confirmed they were on track to increase underlying earnings per share by 35%. There has been a record number of new outlet commissions in FY15 and the company has a pipeline of more than 250 new stores to be commissioned in FY16. Investors can expect a fully franked dividend yield of 4.5% and the shares represent good value considering the international growth opportunities facing Retail Food Group.

3. Shine Corporate Ltd (ASX: SHJ) – The legal firm's share price has fallen recently mainly as a result of the turmoil surrounding Slater & Gordon Limited (ASX: SGH). Although there has been no association between the two companies, the negative sentiment in the legal sector has resulted in investors selling out of both companies. This looks like an opportunity for savvy investors as the outlook for Shine remains very positive. The company has been successful in boosting revenues through acquisitions and is looking to diversify its earnings base from its core area of personal injury compensation by moving into the fast growing emerging practice service sector.

4. REA Group Limited (ASX: REA) – Australia's dominant online property advertiser has continued its impressive earnings growth in FY15 and is poised to grow even further in FY16. REA Group's share price has fallen heavily since it released a disappointing third quarter update but the growth outlook is still strong. It is expanding in overseas markets and has a number of new products in its pipeline. The sell-off looks overdone and the share price could easily bounce back if management provides a positive outlook when the full year results are released in the coming months.

 Looking for an even better investment idea for the financial year ahead?

Motley Fool contributor Christopher Georges owns shares in REA Group, Shine Corporate and Retail Food Group. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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