AI Bell has selected four shares for investors to consider in the year ahead, ranging from FTSE 100 pharma stalwarts to an ‘adventurous’ housebuilder committed to share buybacks.
Russ Mould, investment director at AJ Bell, outlines the investment cases for the four noteworthy stocks, highlighting what investors should keep an eye on in the year ahead:
Cautious: GSK (GSK) – £18.04p
“The one thing that neither equity, nor fixed income nor currency markets, seem to be pricing in for 2026 is a global economic slowdown or recession. As such, that would probably be the biggest unpleasant surprise for the coming year and it therefore makes sense to include a stock with defensive qualities, just in case, since a balanced portfolio is designed to be prepared for a range of scenarios to give both upside potential and downside protection. Pharmaceutical and vaccine giant GSK may just fit the bill, not least because the stock trades on barely 10 times forward earnings and comes with a 3.9% dividend yield for 2026, according to consensus analysts’ earnings forecasts.
“The early vibes are that incoming chief executive Luke Miels is not planning on major surgery at the FTSE 100 index member when he takes over from Dame Emma Walmsley in January, given how he is already publicly backing existing targets for profit margins in 2026 and revenues for 2030. Analysts are treating both goals with scepticism, especially the one for sales, given patent expiries in 2028 and 2029 in GSK’s HIV portfolio in particular. Lingering uncertainty over US policy on vaccinations under Secretary of Health and Human Services Robert F. Kennedy Jr. is also weighing on sentiment.
“Management counters that the drug development pipeline, with 66 drugs that are undergoing trial at Phase I, II or III, is more than capable of driving future growth, while GSK currently has a happy knack of beating even near-term expectations, something that could be very handy for shareholders if the cycle turns down and earnings start to disappoint elsewhere.
“A first share buyback since 2013 also speaks of management’s confidence in the future and tops up the total cash return from the stock.”
Balanced: Telecom Plus (TEP) – £13.96p
“A share price chart that goes from the top left-hand corner of the screen straight down to the bottom right is not a pretty sight, and shares in Telecom Plus are no higher now than seven years ago, after a fall of more than 30% in the past six months. Yet this fall could represent an opportunity to tuck away a stock with a strong long-term record of growing its customer base, profits and dividends.
“November’s first-half results have weighed on shares in Telecom Plus, which provides energy, mobile, insurance and broadband services to more than 1.4 million customers. Higher costs relating to meter installation and its longstanding energy supply deal with E.ON, increased bad debts and higher customer churn all contributed to a year-on-year drop in first-half profits, but chief executive Stuart Burnett asserted some of this was down to timing issues, as he stuck to forecasts for customer and profit growth for the full year to March.
“An increase in the interim dividend spoke of management’s faith in the outlook, and Telecom Plus can point to dividend payments worth 922p a share in the past decade, a figure which bears scrutiny in the context of the current share price and the healthy balance sheet carrying relatively little debt. Potential for further growth in customers, as they shop around for better deals, and cross-selling underpin the long-term outlook and this could help the shares if Telecom Plus convinces the doubters and delivers on its full-year profit outlook next spring.
“Forward earnings multiples of around 12 times and 11 times for the fiscal years to March 2026 and 2027 respectively, with a forward dividend yield of more than 7%, may also provide the right mix of upside potential and downside protection.”
Adventurous: Bellway (BWY) – £26.33p
“It is hard to block out the drumbeat of doom which seems to surround the UK economy and its equity markets, but unloved can mean undervalued, and that can be an opportunity, especially as it may not take much to change perception and offer something that may be seen as good, or even just less incrementally bad, news. Housebuilder Bellway may just be a case in point.
“The share price still seems sceptical as to the scope for, and pace of, any upturn in the UK housing market. As a result, Bellway’s stock trades at 0.9 times its year-end tangible net asset value per share figure. That discount of 10% provides investors with some downside protection, should the UK economy turn turtle, interest rates come down more slowly than thought or some industry or company-specific problem appear from out of the clouds. It also offers scope for capital appreciation, should lower interest rates, planning deregulation or improved consumer confidence kickstart an upturn in the wider housing cycle, and thus Bellway’s revenue, profits and cash flow.
“And Bellway is well positioned if and when that upturn develops, as it is carrying inventory worth £4.8 billion on its balance sheet, the equivalent of 748 days’ sales. Improved sell-through and completion volumes would help Bellway to liquidate that inventory and release cash to generate the funds that can be used to invest in the land bank and the company’s competitive position and – once that is done – fund dividends and share buyback programmes. Analysts’ consensus forecasts for dividends for the year to June 2026, coupled with a £150 million buyback, already equate to nearly 8% of the current stock market capitalisation, as an added potential attraction.”
Income: Lancashire Holdings (LRE) – 580p
“Lloyds of London syndicate manager Lancashire has a strong record of skilled underwriting in its specialist areas of insuring (and reinsuring) across aviation, property, marine and energy and generating healthy profits and dividends for its shareholders. Between 2008 and the first half of 2025, it has paid out more than 900p a share in ordinary and special dividends, a figure which catches the eye in relation to the current share price. Consensus analysts’ forecasts for dividends which imply a double-digit percentage forward dividend yield may also intrigue income seekers, particularly as Lancashire is expected to pay a special dividend payment for the fourth consecutive year in 2026.
“Some investors will shy away from catastrophe insurance and reinsurance, as they look at climate change and fear the worst. But Lancashire’s exposure to this year’s California wildfires proved more than manageable, and within the limits modelled by its underwriters for such terrible events, and the 2025 storm season has been relatively quiet, even allowing for the awful treatment handed out to Jamaica by Hurricane Melissa. Consequently, the outlook for 2026 earnings and return on equity is good. Although, perversely, fewer pay-outs across the industry means more capital is retained within it and competition for business could hit prices as a result.
“Growth at a new platform in the USA, lower reinsurance prices and skilled underwriting across syndicates 2010 and 3010 should help to support 2026’s earnings all the same, everything else being equal. The risk remains any unforeseen storms and squalls, but a well-capitalised balance sheet could help to buttress the company’s dividend payments – and the yield would still be around 3% even if unchanged, ordinary interim and final dividends are paid.
“Lancashire’s shares trade at barely 1.3 times book, or net asset, value per share of $6.08, and that does not look like a lofty multiple for a business with Lancashire’s long-term returns profile.”