Can Lloyds Banking Group PLC, Paragon Group Of Companies PLC And Aberdeen Asset Management plc Still Rise By 20%+ This Year?
Shares in Lloyds(LSE: LLOY) have fallen in value by 7% since the turn of the year. However, it's still possible for them to turn this deficit around and end the year 20% higher than the price at which they started the year.
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A key reason for this is Lloyds' valuation. The part-nationalised bank has a price-to-earnings (P/E) ratio of just 8.8 and this indicates that an upward share price movement of even 50% isn't unrealistic over the medium term. Clearly, investor sentiment in Lloyds is relatively weak at the present time, but with the bank having a sound strategy which has included making asset disposals, cutting costs and producing a more efficient operation, Lloyds has excellent growth potential.
Furthermore, its income prospects are also very bright. Lloyds has a yield of around 6.6% and although its dividends are perhaps less stable than those of some of its index peers, such a high yield indicates that Lloyds' share price could move higher. That's especially the case since interest rate rises are set to be slow and may cause dividend stocks to remain in vogue through the remainder of 2016.
Tough times ahead?
Also falling in value since the turn of the year have been shares in Paragon(LSE: PAG), with the buy-to-let specialist recording a decline of 14% year-to-date. Clearly, this is disappointing and a reason for this is likely to be concern surrounding the outlook for the buy-to-let market. With a 3% surcharge now in place for additional properties and the tax changes that will end mortgage interest relief for higher rate earners, buy-to-let could be at the beginning of a tough period.
Add to this the gradual rise in interest rates set to take place over the coming years and Paragon's potential to gain 20% this year appears to be slim. So, while Paragon trades on a price-to-earnings-growth (PEG) ratio of just 0.7 and is a high quality business, its operating environment appears to be highly uncertain. Therefore, it may be best to watch rather than buy Paragon right now.
Meanwhile, Aberdeen Asset Management(LSE: AND) has had a rather volatile 2016 thus far. At one point its shares were down by as much as 27% as fears surrounding China took hold and hurt investor sentiment in the emerging markets specialist. However, after a stunning recovery in the last two months, Aberdeen is now up by 6% year-to-date.
Looking ahead, this recovery could continue. Part of the reason for that is Aberdeen's high yield, which currently stands at 6.3%. As mentioned, high yields could remain popular this year and with Aberdeen having raised dividends on a per share basis in each of the last five years, it appears to be a sound income play. Plus, with investor sentiment towards the emerging world now stabilising, it would be of little surprise for Aberdeen to become more appealing to investors who are feeling more 'risk-on' than they were earlier this year.
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Peter Stephens owns shares of Aberdeen Asset Management and Lloyds Banking Group. The Motley Fool UK has recommended Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
