Will 2016 be a better year for the share price of Woolworths Limited and Origin Energy Ltd?

Credit: Woolworths

As the 2015 calendar year draws to a close it may very well be remembered as the year that blue chip stocks lost their blue chip status.

While many ASX investors felt smart both in the lead up to the global financial crisis (GFC) and in the subsequent market rally post-GFC by owning so-called blue chips such as BHP Billiton Limited (ASX: BHP), the banks and a handful of other large stocks. Those portfolio positions are unfortunately not looking like such smart moves today!

The underperformance of numerous blue chip companies and the subdued outlook for many of them brings into question whether it is time for investors to rethink which stocks deserve to be considered the blue chips of the future.

Two blue chip stocks which have significantly underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) this year are Woolworths Limited (ASX: WOW) and Origin Energy Ltd (ASX: ORG).

While the index has fallen around 7%, Woolworths’ share price has declined 24% and Origin’s has slumped nearly 60%.

Falls like this rightly draw the attention of value-hunting investors, but the question remains, what does 2016 hold for Woolworths and Origin?

As I noted here, there are reasons to remain cautious on the outlook for Woolworths as if analyst consensus forecasts prove accurate, the company is in the midst of a multi-year decline in earnings that suggest the stock could be trading on a reasonably hefty financial year (FY) 2018 price-to-earnings ratio of over 18 times.

Meanwhile, the outlook for Origin is equally cloudy. If oil prices remain at current levels throughout 2016, the profitability of its recently completed APLNG project is expected to come under significant pressure. Looking out to FY 2018 and Thomson Consensus Estimates are forecasting earnings per share to be higher than they were in FY 2015. However given the state of the oil and gas market at the moment there is a good chance the share price of Origin could continue to struggle next year.


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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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