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.”

The FTSE 100 surged on Wednesday as investors cheered lower-than-expected inflation data that signalled more Bank of England interest rate cuts in early 2026.

UK CPI inflation came in at 3.2% for the year to November – a significant fall from last month’s reading of 3.6% and well below the 3.5% forecast for November by economists.

The reading is a big win for all involved. Equity bulls jumped into UK stocks on the hopes of more interest rate cuts next year, and the Bank of England’s life has been a whole lot easier. A rate cut tomorrow is a near certainty.

But the question investors will now have is how many rate cuts they can expect in early 2026. Although the inflation is still above the BoE’s 2% target, a trend lower should suffice to justify borrowing costs further in 2026.

London’s leading index jumped 1.7% on the news, hitting the highest levels since early November. 10,000 before the end of the year now looks achievable.

“A lower-than-expected reading of inflation has reinforced expectations for a Bank of England rate cut tomorrow and helped the FTSE 100 to post solid gains on Wednesday morning,” says AJ Bell head of markets Dan Coatsworth.

“The inflation data saw a drop in sterling which helps flatter the dominant overseas earnings in the UK’s flagship index.”

As you’d expect, the FTSE 100’s gains were broad on Wednesday with most shares trading higher. 

There were notable gains for cyclical sectors, including banks and miners among the best performers on the session. HSBC was among the top risers, adding more than 4%. 

Housebuilders enjoyed a strong session on hopes of further interest rate cuts next year. Barratt Redrow rose 2.9% while Persimmon added 2.6%.

The sector is in desperate need of a boost, and investors disappointed with the government’s lack of action on construction in the budget may find some solace in lower inflation data. 

Bunzl was the FTSE 100’s top faller after releasing a disappointing trading update. Shares were down over 2%.

The FTSE 100 was down on Tuesday, with defence stocks weighing on the index as investors digested a raft of delayed US economic data.

London’s leading index was down 0.5% at 9,703 at the time of writing.

“Having moved within sight of the 10,000 mark a little over a month ago, the FTSE 100 lost momentum again today,” said AJ Bell investment director Russ Mould.

“There appears to be little sign of a Santa Rally as concerns about tech valuations continue to knock sentiment in US and Asian markets.

“The chances of an interest rate cut from the Bank of England this Thursday, already widely priced in by the market, looked to have ticked higher off the back of an increase in the UK unemployment rate.”

What hasn’t been priced in is the raft of US economic data withheld due to the US government shutdown. This backlog of US data started hitting the wires on Tuesday, with NFPs and retail sales data released. November Non-Farm Payrolls rose 64,000 compared to estimates of 50,000, while October saw 105,000 jobs lost, mainly due to government layoffs.

The initial reaction saw S&P futures rise, suggesting markets were preparing for more Fed interest rate cuts.

In the UK, defence stocks were among the top fallers as Ukraine peace talks progressed, curtailing interest in the sector. Babcock fell 4% while BAE Systems lost 2.5%.

BP shares were down 2% after the Financial Times reported Shell was unlikely to pursue a takeover of its peer after Shell’s head of mergers & acquisitions left amid a rift with the CEO.

“Reporting around the departure earlier this year of Shell’s M&A chief Greg Gut suggests he left having failed to convince senior management with a pitch for the company to buy BP,” Russ Mould said.

“If accurate, this would heavily hint that Shell is unlikely to return with a bid after the restrictions on its ability to do so expire on Boxing Day.

“Chief executive Wael Sawan was vocal in dismissing the prospect of a mega-merger between the two companies when rumours first emerged – suggesting he would rather use excess capital for share buybacks.”

JD Sports was the top riser as investors rotated into value stocks. JD Sports has had a tough time in 2025, but investors are gradually returning to the sports retailer.

The same can be said of ConvaTec, which is back among the gainers on Tuesday, up 2%.