Deciding which shares to buy with your hard-earned cash is never easy. With hundreds of companies on offer, finding the ones which offer the best mix of value, growth potential and income prospects can be tough. However, here are two shares which could prove to be top-notch performers over the coming years.
Defence sector potential
Donald Trump recently announced a major increase in spending for the defence industry. While this caused a mixed response from critics, it should be good news for defence companies such as BAE(LSE: BA). It is likely to see an increase in demand for its products, since the US has the biggest military in the world. As such, it would be unsurprising for the company's earnings growth rate to move higher in the coming years.
Even in 2017 and 2018, BAE is expected to record a rise in its bottom line of 6% and 7% respectively. Given the austerity programmes followed by governments across the developed world in recent years, this shows that the company has a resilient earnings profile. And with an internationally diversified business model, it should benefit from weaker sterling as Brexit talks commence.
With a price-to-earnings (P/E) ratio of 15.3, BAE is not exactly dirt cheap. Its shares have risen by 27% in the last year as investors have gradually priced-in improved prospects for the defence sector. However, its dividend yield of 3.4% remains attractive - especially since shareholder payouts are covered more than twice by profit. As such, BAE seems to offer a potent mix of growth potential and bright income prospects, thereby suggesting it is a smart place to invest.
Shares in Dixons Carphone(LSE: DC) have been hugely disappointing in the last year. They have fallen by 31% and could decline further in the coming months. That's due to rising inflation which is causing consumer confidence to trend downwards. And since inflation is likely to rise as 2017 progresses, it would be unsurprising for Dixons Carphone to experience even tougher trading conditions than those present right now.
Despite this, the company could be a sound investment. It currently trades on a P/E ratio of just 9.6, which indicates that the challenges which may lie ahead have already been factored-in by investors. Furthermore, Dixons Carphone now yields 3.6% from a dividend which is covered three times by profit. This indicates that even if profitability fails to rise rapidly, its shareholder payouts could move swiftly higher.
In the long run, the company has growth potential as consumers seek a one-stop-shop for all of their technology needs. As the Internet of Things progresses, Dixons Carphone should deliver improved results. In the meantime, it seems to have the financial strength to overcome economic weakness caused by higher inflation. Therefore, buying it now could be a shrewd move for the long term.
And what about Brexit?
Dixons Carphone's challenges may already be factored-into the price but that is not the case for everyone, especially when it comes to the biggest challenge of all, Brexit. As the two-year Brexit negotiation process begins, fear and indecision could hurt share prices in the coming months. That's why the analysts at The Motley Fool have written a free and without obligation guide called Brexit: Your 5-Step Investor's Survival Guide.
It's a simple and straightforward guide that could help you to determine how your portfolio will perform in 2017 and 2018. It could boost your returns and aid you in finding the best stocks at the lowest prices.
Click here to get your copy of the guide - it's completely free and comes without any obligation.
Peter Stephens owns shares of BAE Systems. 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.