With the end of the calendar year fast approaching, now is usually a good time for investors to look at their portfolios and consider rebalancing their investments for the year ahead.
For many Australian investors, 2015 has been pretty disappointing considering many of the household names like Woolworths Limited (ASX: WOW), Telstra Corporation Ltd (ASX: TLS) and BHP Billiton Limited (ASX: BHP) are going to finish the year in negative territory.
Despite this, there have been some excellent performers in 2015 – just consider stocks like Blackmores Limited (ASX: BKL), Domino's Pizza Enterprises Ltd. (ASX: DMP) and the "white gold" stocks of Bellamy's Australia Ltd (ASX: BAL) and A2 Milk Company Ltd (ASX: A2M).
Very few people at the start of 2015 would have predicted the returns these stocks have delivered (both positive and negative), especially considering that record low interest rates were supposed to boost high-yielding stocks.
Nobody knows where the market will end in 2016, but with many of 2015's themes expected to continue into 2016, investors will once again need to be selective in their stock picks.
Here are three stocks that I think could provide market-beating returns in 2016:
Retail Food Group Limited (ASX: RFG) – Retail Food Group offers investors exposure to both growth and income. The share price has tumbled in 2015 on the back of concerns surrounding poor consumer sentiment, but its financial results were still very strong. The company expects to grow earnings by around 25% in FY16 and has a strong pipeline of domestic and international projects. With a dividend yield of around 5.5% and a positive growth outlook, the share price of Retail Food Group could easily make a comeback in 2016.
ResMed Inc. (CHESS) (ASX: RMD) – It has been another successful year for ResMed and I expect 2016 to be no different. In fact, ResMed should be an excellent investment over the next decade as the company targets millions of yet to be diagnosed and untreated patients. Despite increasing competition in the sleep apnoea market, ResMed remains a market leader and at the forefront in research and development of new prodcuts. The potential for a lower Australian dollar will also benefit local investors and the recent pull-back in the share price offers an attractive entry point.
Tassal Group Limited (ASX: TGR) – Although Tassal is currently trading at 52-week highs, the shares still look attractively priced on a price-to-earnings ratio of 13.5. With a range of new products hitting supermarket shelves, the demand for healthier food options increasing and the recent De Costi acquisition increasing its potential market, the salmon producer should enjoy another successful year. Additionally, low gearing and a strong balance sheet has some analysts forecasting a dividend yield of more than 4%.
On the flip-side, here are two stocks I think investors should avoid:
Iluka Resources Limited (ASX: ILU) – Iluka has suffered a sharp decline in profitability over the past couple of years as demand for its mineral sands products has decreased at the same time supply has increased. Much of Iluka's potential success will depend on demand recovering from China and increases in commodity prices. With both of these scenarios unlikely in 2016, shareholders of Iluka could face another difficult year.
Australian Pharmaceutical Industries Ltd (ASX: API) – API has performed extremely well in 2015 with its share price increasing by more than 135%, but I think the easy gains have already been made. The pharmacy sector is facing significant price deflation as a result of the government's ongoing price disclosure reforms and this will impact directly on its distribution business. With the shares trading at more than 22x earnings, investors should take profits and look for more attractive opportunities.
Are you looking for more ideas to sink your teeth into?
