A dividend stock and a growth stock I'd buy in February
With the FTSE 100 index hovering around the 7,200 point mark, I'm not seeing a great deal of value among large-cap stocks right now. Having said that, here's a look at two that I believe have strong potential, one that pays a formidable dividend and another with compelling growth prospects.
For a sizeable dividend yield at a reasonable valuation, it's hard to look past Legal & General Group(LSE: LGEN). The insurer paid out a generous 13.4p per share in dividends for FY2015, and City analysts forecast FY2016's payout to be an even higher 14.3p per share, equating to a yield of 6% at the current share price.
The 6% mark is a level in which some investors can get a little twitchy, fearing that a dividend cut may be forthcoming. However, with earnings of 21.1p per share forecast for FY2016, the insurance giant sports a dividend coverage ratio of just under 1.5, suggesting that there's no need to hit the panic button just yet.
Several brokers believe Legal & General's share price can climb higher, with RBC Capital Markets, Barclays and HSBC placing price targets of 300p, 282p and 275p on the stock, respectively. Despite rebounding 45% since the Brexit vote, Legal & General still looks like a good value stock pick in my opinion, given its undemanding P/E ratio of 11.3.
Long-term growth story
For those less interested in dividends, and more focused on generating strong capital growth, I reckon Hikma Pharmaceuticals(LSE: HIK) has a huge amount of potential.
It develops and manufactures a broad range of branded and non-branded pharmaceutical products across the US, Europe and the MENA region and has a portfolio of over 550 healthcare products. Furthermore, after making several key acquisitions in the last few years, the company has many more products in the pipeline, and this should drive revenue growth. As such, Hikma looks to be an excellent play on the ageing population theme and I believe that long-term investors will be rewarded.
The drugs specialist has had a volatile year, with its share price spiking higher after the Brexit result, only to fall significantly after an August profit warning. However the share price now looks to be trending up again, and I believe there's plenty more to come.
While FY2016 earnings are expected to fall to $1.04 per share, analysts envisage earnings momentum picking up in FY2017, and consensus earnings per share estimates are currently $1.41 for FY2017. That places the stock on a FY2017 P/E ratio of around 17, which seems reasonable for a company that has nearly doubled its revenues in the last five years alone.
Broker sentiment towards Hikma is largely positive, with several analysts calculating price targets around the 2,500p mark, and I share their enthusiasm, believing that there's a compelling long-term growth story at play here.
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Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.