Why Standard Chartered PLC, Pennon Group plc And RSA Insurance Group plc Are Set To Beat The FTSE 100

Photo: Tomkasing. Cropped. Licence: http://creativecommons.org/licenses/by-sa/3.0/
Photo: Tomkasing. Cropped. Licence: http://creativecommons.org/licenses/by-sa/3.0/

With the near-term outlook for the FTSE 100 being highly uncertain, defensive stocks such as Pennon(LSE: PNN) could be worth holding. That's because the water services company has historically been seen as a safe haven during volatile periods in the past and if the UK votes to leave the EU, Pennon could outperform the wider index. Part of the reason for that is the fact that the stock has a beta of just 0.7 and if the FTSE 100 does fall then Pennon should fall by a smaller amount than the wider index.


Of course, Pennon also offers a superb income future too. It currently yields 4.4% from a dividend set to rise by as much as 5.8% next year. Not only does this provide the company's investors with an index-beating yield, but Pennon also offers a real-terms increase in income for its shareholders over the medium term. With interest rates being low, this could act as a positive catalyst and allow it to beat the FTSE 100 in 2016 and beyond.

Turnaround time

Also having index-beating potential is RSA(LSE: RSA). The insurance company has had a troubled recent past, but under the management of CEO Stephen Hester it's in the midst of a successful turnaround which is forecast to see it record a rise in earnings of 37% this year and 25% next year.

Such strong growth figures could improve investor sentiment in RSA and when combined with a price-to-earnings (P/E) ratio of just 15.4 equate to a price-to-earnings-growth (PEG) ratio of only 0.5. This indicates that RSA is very undervalued at the present time and although there's the scope for a downgrade to forecasts, it seems to have a sufficiently wide margin of safety to warrant investment.

Furthermore, with RSA having a yield of 3% from a dividend covered more than twice by profit, its income prospects remain sound and may act as a further catalyst on its share price.

Brighter future?

Meanwhile, Standard Chartered(LSE: STAN) may not seem capable of beating the FTSE 100. That's because the Asia-focused bank has experienced a tumultuous recent past, with regulatory challenges causing investor sentiment to come under huge pressure. Disappointing profitability also caused dividends to be cut and with the company slimming down its management structure, it's clearly in a period of major change.

While this may cause further volatility in the short run, Standard Chartered could become a superb turnaround stock. For starters, it's expected to record exceptional profit growth next year, with its pre-tax profit due to rise by over 100% in 2017. And with its shares trading on a forward P/E ratio of 12.9, it seems to offer excellent value for money too.

Furthermore, financial product penetration is likely to rapidly rise in Asia over the coming years. This means that Standard Chartered's commanding position in the region should serve it well and allow it to turn its share price disappointment around.

Despite this, there's another stock that could be a better buy. In fact it's been named as A Top Growth Share From The Motley Fool.

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Peter Stephens owns shares of Pennon Group and Standard Chartered. 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.