With this in mind, two FTSE 100 stocks I’d be happy to buy today, and hold forever, are Smith & Nephew (LSE: SN) and Coca-Cola HBC (LSE: CCH). Let me tell you about the particular attractions I see in these two businesses, and why I think their shares are currently reasonably priced.

Rising demand

Medical technology specialist Smith & Nephew operates in markets that are structurally and demographically attractive. Ageing populations, with more people being physically active for longer in retirement — wanting to enjoy travel, sports, and so on — means there’s rising demand for SN’s products.

The group has three business units: Orthopaedics (includes knee and hip implants); Sports Medicine (includes joint repair); and Advanced Wound Management. In a Q3 trading update today, it reported strong revenue growth of 6.5% (4% underlying), with all three franchises contributing. Geographically, emerging markets (19% of group revenue) delivered underlying growth of 16%.

Heading for above-market growth

SN’s Q3 revenue performance was built on first-half momentum, and led management to upgrade its full-year guidance for the second time this year. Ahead of today’s results, City analysts were forecasting full-year earnings per share (EPS) of 79p which, at a current share price of around 1,700p (a little down on the day), gives a price-to-earnings (P/E) ratio of 21.5.

The shares were not far off 2,000p as recently as last month, and I think the dip represents a good opportunity to buy in. The announcement of a change of chief executive is partly responsible for the recent weakness, but I don’t see this as a major concern.

The company is growing its underlying revenue in line with the attractive 4% average growth of its various end-markets. And I think improving operational performance and recent product acquisitions will translate into above-market growth in the coming years. In view of this, SN’s premium P/E rating is not at all unreasonable, in my opinion.

Brands are the business

Coca-Cola HBC — one of the largest bottling and distribution partners of The Coca-Cola Company — also trades at an above-market-average earnings multiple. And I think this is reasonable too. At a share price of around 2,340p, with City forecasts of EPS of 123p, the P/E is 19.

Operations in 28 countries, and excellent exposure to fast-growing developing markets (20% of revenue) and emerging markets (43%) are engines for growth. Management has guided on underlying revenue growth of 5-6% for the current year, with margin expansion pushing up profit at an even faster rate. Meanwhile, brand strength and repeat purchases of what are affordable drink treats, including Coca Cola, Sprite and Fanta, give CCH defensive qualities.

The Coca-Cola Company’s acquisition of Costa Coffee from Whitbread earlier this year provides CCH with yet another strong brand and growth engine. It’s preparing to launch Costa Coffee in 10 of its markets in 2020, expanding into all its markets over the following three years. I reckon CCH is another stock with outstanding buy-and-hold credentials.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Such companies could not only deliver improving income returns, but may see their shares become increasingly popular among investors. With that in mind, here are two FTSE 100 dividend growth stocks that could deliver significantly higher returns than a Cash ISA.

Compass Group

The first half results released by food services business Compass Group (LSE: CPG) on Wednesday highlighted the consistent performance the company offers. Organic revenue growth was 6.6%, driven by a strong performance in North America and Europe. It was able to maintain a relatively high margin while also absorbing the additional mobilisation costs in Europe from a higher growth rate.

The company continues to invest in its long-term future. It spent £370m in the period on acquisitions, with many of them in North America. It has also retained a disciplined stance on costs, with a focus on efficiencies helping to offset inflation and mitigate ongoing volume weakness in the UK and Europe.

With Compass Group having increased its dividends per share at an annualised rate of over 9% in the last four years, it’s a relatively consistent income share. Although its dividend yield of 2.3% may not be among the highest in the FTSE 100, the stock offers resilience and more dependable dividend growth than many of its peers. As such, it could post impressive total returns over the long term.

Coca-Cola HBC

Bottling company Coca-Cola HBC (LSE: CCH) has posted impressive growth in recent years. Its bottom line has risen by over 50% in the last four years, enabling it to pay a higher dividend during that time. In fact, dividends per share have increased at an annualised rate of over 12% during those last four years.

With a strong brand and the business having become increasingly efficient in recent years, it appears to offer a solid growth outlook. Although it has a dividend yield of 2.5%, its shareholder payout is covered 1.8 times by profit. This suggests there could be scope for continued dividend growth over the long run.

Furthermore, Coca-Cola HBC could offer capital growth potential. The company is forecast to post a rise in earnings of 17% in the current year, followed by growth of 11% next year. With the stock trading on a price-to-earnings growth (PEG) ratio of 1.7, it could offer good value for money compared to the wider FTSE 100.

As such, now could be a good time to buy it for the long term, with its risk/reward ratio highly appealing.

The post Forget a Cash ISA! I’d buy these 2 FTSE 100 dividend stocks today appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There are just two weeks to go to deadline day for using the £20,000 allowance for 2018/19. With this in mind, three FTSE 100 dividend stocks I’d be happy to buy for my ISA right now are Coca-Cola HBC (LSE: CCH), Fresnillo (LSE: FRES) and DS Smith (LSE: SMDS).

High-growth business

Coca-Cola HBC is one of the largest bottlers of The Coca-Cola Company, and the most geographically diverse. It operates in 28 countries on three continents.

I like the split of volumes between established markets (28%), and emerging and developing markets (72%). Rising wealth and disposable incomes in the latter locations are a great driver for long-term growth, with more people spending more money on world number one soft drink Coke, and other popular brands in the stable, including Fanta and Sprite.

At a current share price of 2,592p (7.5% below its previous high), you’re paying 21.5 times forecast 2019 earnings, and get a prospective dividend yield of 2.1%. The rating is a premium one, relative to many companies, but we should bear in mind this is a brands powerhouse, with a long record of average annual double-digit earnings and dividend increases. This looks set to continue well into the future, due to the aforementioned footprint in high-growth emerging and developing markets.

Silver lining

Fresnillo is the world’s leading silver producer and Mexico’s largest gold producer. It owns a portfolio of low-cost, long-life mines. And with it also having high-potential development projects and advanced exploration prospects, there’s a pipeline of growth for years to come.

The high quality of its assets enables it to operate profitably even at times when precious metals prices are depressed. This was the case last year, when lower than expected ore grades and some operational issues also impacted performance, despite record annual silver production.

The current share price of 834p is over 40% below its level at the start of 2018. I view this weakness as a great opportunity to take a stake in the business for its longer-term prospects. A rating of 22 times forecast 2019 earnings falls to 18 times for 2020, on expectations of accelerating momentum. Meanwhile, the prospective dividend yield rises from 2.4% to 2.7%.

Compelling valuation

Packaging group DS Smith, which operates across 37 countries, is another stock that’s somewhat out of favour with the market. While its current share price of 342p is up from a sub-300p level in late December, it’s still well below last summer’s highs of over 500p.

I believe market concerns about global economic growth and rising supply from Chinese containerboard producers may be weighing on sentiment. However, I reckon DS Smith’s customer bases — large e-commerce companies (think Amazon) and fast-moving-consumer-goods groups (think Unilever) — make it an attractive business for long-term growth.

The company is trading on just 9.8 times forecast earnings for its financial year ending 30 April, while the forecast dividend gives a chunky yield of 4.8%. And with analysts having pencilled-in double-digit earnings growth for fiscal 2020, I believe the value here is compelling.

The post 3 FTSE 100 dividend stocks I’d buy for my ISA today appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Unilever. The Motley Fool UK has recommended DS Smith and Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Certainly, the company’s share price fall has boosted its dividend yield. However, it could offer improving financial prospects which have not yet been factored into its valuation by the stock market. Alongside another dividend stock which released results on Thursday, it could be worth buying for the long run.

Growth potential

The company in question is Coca-Cola HBC (LSE: CCH), which is a leading bottler for The Coca-Cola Company. It released full-year results that showed net sales growth of 6% on a constant currency basis. This is its second year of growth above its 4%-5% target range, with the business making further progress towards its 2020 margin targets.

Volume growth accelerated to 4.2%, with rises experienced in all segments. This was driven by Sparkling beverages, while there was continued momentum in Emerging and Developing segment countries. The company was also able to deliver a 20 basis point reduction in operating expenses as a percentage of revenue, with innovation and an investment in marketing boosting its overall performance.

With Coca-Cola HBC having a dividend yield of 2.4%, it may not appear to be an attractive income stock. However, with this year’s dividend payment expected to mean that it has raised shareholder payments at an annualised rate of 11% over the last five years, its dividend growth rate could be high over the long run. Dividend cover of 2.2 suggests that further increases could be ahead.

Margin of safety

As mentioned, the Saga share price has experienced a challenging period in the last couple of years. Disappointing financial performance has caused investors to become increasingly bearish about the stock’s outlook. This has resulted in it offering a wide margin of safety, with a price-to-earnings (P/E) ratio of 8.5 suggesting that the stock could have value investing potential.

In terms of its financial outlook, the company faces a difficult future. Recent updates have shown mixed performance across its various segments, with a competitive environment weighing on its prospects. However, with it making attempts to improve customer loyalty in order to widen its economic moat, it could deliver improving financial performance over the long run.

In terms of Saga’s income prospects, net profit growth of 2% forecast for this year suggests that it may lack dividend growth potential. However, with its dividend yield of 8% being significantly higher than many of its FTSE 250 peers, it could generate impressive income returns in the long run. Since dividends are covered 1.5 times by profit, they seem to be affordable. This may convince investors that the stock retains its income appeal despite facing a tough operating environment, which could positively impact on its share price performance.

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Peter Stephens owns shares of Saga. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Brand powerhouses are wonderful businesses to have a long-term stake in, I believe and Buffett agrees. He says that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Of course, the qualities of such businesses are widely appreciated and their shares tend to command a premium price in the market. However, a broad sell-off of equities (as we saw last month), or a quarterly earnings miss by a company, or some other temporary setback, can provide an opportunity for investors with a long-term perspective to buy at a good price.

Two FTSE 100 stocks I’d be happy to buy right now, and hold for decades, are Coca-Cola HBC (LSE: CCH) and Harpic-to-Durex group Reckitt Benckiser (LSE: RB).

October sell-off discount

Coca-Cola HBC (CCH) is one of world’s largest bottlers of drinks brands from The Coca-Cola Company. The latter supplies the concentrates and syrups, and CCH manufactures, packages, merchandises and distributes the final branded products to trade partners and consumers. It operates in 28 countries across three continents.

The stock closed yesterday at the top of the FTSE 100 leader board (up 5% on the day at 2,376p) after a solid Q3 trading update in which it reported year-on-year revenue growth of 2.6% (4.5% at constant exchange rates). Nevertheless, the shares are 9% below their 2,615p level at the start of October and 15% below their summer high of a tad above 2,800p.

Back in May, at the time of its Q1 results, I thought CCH’s valuation of 21.2 times forecast 2018 earnings was attractive for such a high-quality business. At today’s share price, the multiple is more appealing still — 20.1 on latest forecast earnings of €1.35 a share (118p at current exchange rates). In addition, long-term investors should not underestimate the value of a 2.3% dividend yield.

Double whammy opportunity

Reckitt Benckiser’s shares not only fell because of the market sell-off during October but also suffered from a negative response to its Q3 trading update near the end of the month. As a result, the current price of 6,264p is 12% down from 7,155p in early October and over 20% below last year’s high of just north of 8,000p.

The company said Q3 sales to a number of markets were affected by a temporary manufacturing disruption. It added that while this was resolved by the end of the quarter, it expects some residual impact in Q4 and into 2019. However, due to momentum in the overall business, management reiterated its previous full-year revenue target and added that like-for-like growth would be at the upper end of its 2% to 3% range. Nevertheless, the market didn’t like it.

I see October’s broad sell-off of equities and Reckitt’s poorly received Q3 update as just the kind of situation long-term investors can take advantage of. As a result of the double whammy, the stock is trading at 19.2 times forecast 2018 earnings (a bit cheaper than CCH) and with a prospective dividend yield of 2.7% (a bit fizzier than the drinks firm).

The post 2 FTSE 100 stocks I’d buy today and hold for decades appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The shares are rising again today on the release of a first-quarter trading update. Can the company continue to deliver superior returns? I’ll come back to Coca-Cola HBC shortly, but first let me tell you about a truly astonishing smaller-cap performer.

A 1,695% return

Robotic process automation specialist Blue Prism(LSE: PRSM) saves companies money by eliminating repetitive manual tasks carried out by expensive human employees. Its hundreds of customers include the likes of IBM and Procter & Gamble.

Blue Prism floated on AIM at 78p on 18 March 2016. Its shares are currently trading at 1,400p (a rise of 1,695%) and the business is valued at £927m. Over the same period, the Coca-Cola HBC share price has increased 73%, while the FTSE 100 has gained a relatively paltry 23%.

Unsustainable valuation

My Foolish colleague Paul Summers has been a consistent bull of Blue Prism and duly rewarded. In contrast, my caution about the valuation of this still-lossmaking business has been made a mockery of by the market.

The company’s co-founder and chief executive, Alastair Bathgate, has certainly done a great job of selling the story to investors and the software to customers. However, while revenue is forecast to rise to £47.5m this year from last year’s £24.5m, the loss before tax is forecast to widen to £22m from £9.5m. For 2019, analysts are forecasting another £22m loss, despite a further leap in revenue to £70m.

The current eye-watering valuation of almost 20 times forecast 2018 sales and over 13 times forecast 2019 sales looks unsustainable to me. As such, I continue to rate the stock a ‘sell’.

Solid start to the year

Coca-Cola HBC reported a solid first-quarter performance today, with net revenue growth of 4.5% at constant exchange rates. Established markets saw 1.9% growth, developing markets 10.3% and emerging markets 4.4%.

Chief executive Zoran Bogdanovic said the performance was in line with expectations and that “with strong commercial plans in place and anticipated gradual economic recovery in Russia and Nigeria, we expect our revenue growth to accelerate as the year progresses.”

High quality at attractive price

When I last looked at the company in November, the shares were trading at 2,600p. City analysts were forecasting earnings per share (EPS) of €1.14 (101p at the then-exchange rate) for 2017, giving a forward price-to-earnings (P/E) of 25.7. In the event, EPS came in a little ahead of consensus at €1.17. The EPS forecast for 2018 is €1.36 (119p at current exchange rates), so at the current share price of 2,520p, the forward P/E is 21.2.

Back in November, the valuation was a little too rich for me but I see the current P/E as attractive for this high-quality business. As such, I rate the stock a ‘buy’.

The post These rampant growth stocks are crushing the FTSE 100 appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK is short shares of IBM. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We can’t go back in time and copy one of his most successful trades. But what if we could find our own Coca-Cola opportunity on this side of the pond?

This could be real

A good starting point might be Coca Cola HBC AG (LSE: CCH), which bottles Coca-Cola drinks for 28 countries, including most of Central and Eastern Europe. It’s a big business, with 55 bottling plants and 169 warehouses and distribution centres.

Figures released today show that the group had a good year in 2017. Sales rose by 4.9% to €6,552m, while volumes were 2.2% higher at 2,104.1m cases. Operating profit surged ahead by 16.5% to €589.8m, lifting the group’s operating margin by 0.9% to 9%.

One area of concern for shareholders has been the group’s debt. The good news is that net debt fell by 28% to €751.8m last year. This improved financial strength is reflected in the dividend, which has been increased by 23% to €0.54 per share.

I might buy

I’ve often looked at this stock in the past, but dismissed it as too expensive. However, the group’s share price has fallen by 14% since peaking last September. The shares are now starting to look more affordable.

Today’s results put the stock on a P/E of 20.9 with a dividend yield of 2.1%. That’s hardly cheap, but earnings are expected to rise by another 11% in 2018, bringing the forecast P/E down to 19.

I may still wait to see if the shares get cheaper, but I believe Coca-Cola HBC is now worth considering as a long-term buy.

This could be a bargain income buy

FTSE 100 oil and gas giant Royal Dutch Shell (LSE: RDSB) has fallen by about 12% from the high of 2,617p seen in early January. This has left the stock trading on a more affordable forecast P/E of 13.5, with a dividend yield of 5.9%.

One year ago, some investors questioned the safety of this cash payout. However, Shell’s recent results made it clear that this dividend should now be very safe indeed. The group’s adjusted earnings rose by 117% to $16.2bn in 2017, lifting earnings per share to $1.92.

Cash generation was equally impressive. Free cash flow for the year rose from -$10.3bn to +$27.6bn, comfortably covering the $15.6bn paid out in dividends, and allowing for an $8bn reduction in net debt.

It just gets better…

Since reading Shell’s 2017 results at the start of February, analysts’ consensus profit forecasts for 2018 have risen by an average of $1.34bn. Earnings per share are expected to rise by 22% to $2.35 this year, improving the level of dividend cover to 1.25 times.

Although this level of cover is somewhat lower than I’d normally want to see, improved conditions in the oil market mean that Shell’s dividend plans look very affordable to me. For investors looking for a pure income stock, I believe Shell deserves a ‘buy’ rating.

The post Why I’d buy dividend stocks Shell and Coca Cola HBC AG appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m going to look at the prospects and current valuation of the company and at another blue-chip contender for the growth-and-income crown.

Set fair

Imperial released its annual results on Tuesday for what it described as an important year for progress. In a tough trading environment, it advised it had gained market share in most of its priority markets. And despite increased investment, earnings advanced 7% to 267p thanks to favourable currency movements. Meanwhile, 91% cash conversion supported a ninth consecutive year of 10% dividend increases, taking the payout to 170.7p (64% of earnings).

Imperial’s shares are trading at around 3,150p, as I’m writing, which gives a trailing price-to-earnings (P/E) ratio of 11.8 and a running dividend yield of 5.4%. These metrics suggest to me that the stock continues to be an excellent choice for both growth and income. The company is confident the business is set fair to deliver sustainable growth and value for shareholders. This confidence is emphasised by the board’s continuing policy to increase the dividend by 10% a year.

Tobacco companies have continued to thrive even through decades of rising health awareness and increased regulation, while there is little threat to the incumbents from new entrants into the market. As one of the big players and with its shares trading at an attractive valuation, I rate Imperial a ‘buy’.

Excellent business

Fellow FTSE 100 firm Coca-Cola HBC (LSE: CCH), which released a trading update today, is one of the biggest bottling partners of The Coca–Cola Company. It operates in 28 countries “from Ireland in the west to the Pacific coast of Russia in the east, from the Arctic Circle in the north to the tropics of Nigeria in the south.”

Today, the company reported a strong Q3 performance, with net revenue up 5%. Management told us: “We go into the final quarter encouraged by our progress and confident in delivering on our expectations for the full year.”

City analysts are forecasting full-year earnings per share of €1.14 (101p at current exchange rates), 20% ahead of last year. This supports a forecast 18% increase in the dividend to €0.52 (46p). The shares are trading at around 2,600p, giving a P/E of 25.7, which is markedly higher than that of Imperial. Meanwhile, its dividend yield is significantly lower at 1.8%, partly due to a less generous payout ratio of 46%.

Coca-Cola HBC is an excellent business with a tremendous economic moat and has potential to grow its top line at a faster rate than its tobacco peer. In my view, it merits a premium P/E at least in line with other high-quality companies in the drinks sector, such as Diageo. However, the current rating of 25.7 is somewhat above the level I’d be willing to pay, so, much as I like the business, I’d be inclined to hold off in the hope of a lower entry point.

The post Could this stock better Imperial Brands plc for growth and income? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

On its own these may not seem like particularly important data points, but they are because they change one of the key assumptions that Fevertree went public on. This assumption came from a 2014 Ernst & Young report that predicted that at a maximum premium mixers would account for 16.5% of the global market and be worth roughly £1.6bn in annual sales.

Now that we see Fevertree itself has vastly exceeded the market share estimate in the UK it opens up the possibility of the company’s annual sales one day far exceeding £1.6bn. This won’t be an easy task as total sales in 2016 amounted to only £102m. But it’s an achievable one if the company continues to focus on expanding overseas into huge markets such as the US and adds to the bevy of drinks it offers.

The founder-led management team appears to be doing exactly this, talking up the introduction of new drinks designed to pair well with the dark liquors Americans prefer. The US only accounted for 21% of revenue last year, but sales still grew 36% on a like-for-like basis as the company rolled out new mixers and won listings in major retailers such as Target. If the company’s colas and ginger beers can prove as popular in America as their tonics have in the UK, it will be sitting on a goldmine.

Make no mistake, Fevertree still has a long way to go to live up to lofty market expectations that have its shares priced at 47 times trailing earnings. But with its market share far exceeding expectations at home and a new focus on growth in America, I still reckon the future is bright for the fast-growing small cap.

Now for the 800lb gorilla in the room 

As Fevertree grows it will increasingly find itself in competition with soft drinks giant Coca Cola HBC (LSE: CCH), the bottler that distributes Coke products to 20-odd countries in Central and Eastern Europe. As one would expect, this is a substantially slower-growth company, with 2016 seeing a meagre 01.% rise in volume shipped and 3% increase in constant-currency sales.

The appeal for more conservative investors is obvious. Coca Cola HBC only has to worry about bottling and distributing its products, which has relatively low margins but is highly defensive and absolves it of the need for big R&D or marketing expenses. This also allows the company to pay out roughly half its earnings in a dividend. But is this enough as its shares only yield an unimpressive 1.65%?

A yield this low will keep income investors away and unfortunately a 21.6 forward P/E ratio will likely scare away value investors as well. With low dividends, low growth and a relatively high valuation Coca Cola HBC will not be at the top of my shopping list in 2017.

The post Here’s why the best is still to come for Fevertree Drinks plc appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. 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.

A new strategy

Tesco (LSE: TSCO) has a P/E ratio of 26 that may appear to be exceptionally high given the uncertain outlook for UK retailers. After all, Brexit may lead to reduced consumer confidence and lower spending, even on essential items. In addition, the competitive pressures of the supermarket sector are showing little sign of ebbing. Therefore, Tesco’s outlook is undoubtedly challenging.

However, the company’s strategy of focusing on food, efficiencies and expansion into new areas, as evidenced by the Booker acquisition, means that its bottom line is forecast to rapidly rise. For example, in the next financial year it is forecast to increase by 31% and then by 30% the year after. When combined with its P/E ratio, this puts the company on a price-to-earnings growth (PEG) ratio of less than one.

Certainly, Tesco is a relatively risky stock to buy at the present time. Its acquisition of Booker will take time to integrate and it will attempt to do so while implementing a revised strategy in its other operations. It may also make disposals within its international operations in order to focus on the UK. All of these changes may make the stock a more volatile place to invest in 2017. However, they could also turn it into a winning investment.

A stable stock worth paying for

Stability in 2017 seems to be in short supply. Already, the FTSE 100 has yo-yoed this year and it would be unsurprising for this to continue. Against this backdrop, Coca-Cola HBC (LSE: CCH) offers a relatively robust and predictable outlook. For example, it is expected to record a rise in its bottom line of 15% this year, followed by 14% next year. Therefore, while its P/E ratio of almost 23 is rather high, it seems to price the company fairly given its double-digit growth prospects.

While a share price rise of 40% in the last year has made the stock less enticing as a dividend play, it continues to have sound income potential. For example, in the next two years its shareholder payouts are forecast to rise at an annualised rate of over 14%. This puts it on a forward dividend yield of 2.6%. Since dividends are covered more than twice by profit, there is scope for further dividend growth over the long run. This could act as a positive catalyst on Coca-Cola HBC’s share price and lead to even higher total returns in the coming years.

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Peter Stephens owns shares of Tesco. 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.