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2 top stocks for 2016: Ramsay Health Care Limited and Macquarie Group Ltd

While the performance of the ASX has been hugely disappointing in 2015, with the index being down 9% since the turn of the year, a number of stocks have delivered stunning share price performance. For example, Ramsay Health Care Limited (ASX: RHC) has risen by 10% year-to-date and, looking ahead, further share price gains could be on the cards.

A key reason for this is that Ramsay’s sales and profitability are less positively correlated to the performance of the wider economy than is the case for most ASX-listed companies. In fact, as a private hospital operator Ramsay is a highly defensive business so that Ramsay’s forecast earnings growth rate of 20.8% per annum during the next two years is highly likely to be met.

Furthermore, Ramsay’s strategy of diversifying geographically appears to be a sound one, with its move into China offering excellent long term growth prospects. That’s because, as well as being the world’s second-largest economy, China has an ageing population and so health care is likely to be a major growth area in future years.

In addition, with Ramsay having a strong financial standing, it appears to be well placed to engage in further M&A activity following its $620m takeover of a controlling interest in France’s Gds. And, with its shares trading on a price to earnings growth (PEG) ratio of just 1.46 versus 1.29 for the ASX, Ramsay appears to offer excellent value for money when its defensive prospects are taken into account.

Also having an excellent 2015 has been Macquarie Group Ltd (ASX: MQG). Its shares have risen by 34% since the turn of the year and yet they trade at a discount to the ASX. For example, Macquarie has a price to earnings (P/E) ratio of 14, while the ASX has a P/E ratio of 15.1. This indicates that there is upward rerating potential — especially with Macquarie being forecast to increase its bottom line at an annualised rate of 10.8% during the next two years.

As well as an impressive earnings growth rate, Macquarie is increasingly becoming a relatively stable investment option. That’s because it is following an M&A strategy of purchasing annuity-like income streams which offer relatively consistent and reliable returns over a long period. For example, the purchase of the Esanda dealer network for $8.2bn was another addition in this space, with annuity-style businesses now making up two thirds of Macquarie’s business and holding great appeal to rather nervous investors.

Meanwhile, Macquarie continues to offer excellent income prospects, with its shares currently yielding 4.5% and being expected to increase dividends per share by 10.4% per annum during the next two years. With dividends being covered 1.6 times by profit, more increases in shareholder payouts could lie ahead over the medium to long term.

Despite this, there are 3 other ASX stocks that could outperform Ramsay and Macquarie.

In fact, they have recently been named as The Motley Fool's 3 Top Blue-Chips For 2016 and could make a real impact on your bottom line as we move through the year. As a result, it's well worth finding out more about them.

Click here to do so – it's completely free and comes without any obligation.

Motley Fool contributor Peter Stephens has no position in any stocks mentioned. 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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