4 Consumer Stocks Set To Post Stellar Returns: Unilever plc, WM Morrison Supermarkets PLC, DFS Furniture PLC And Findel plc

These 4 stocks look set to soar: Unilever plc (LON: ULVR), WM Morrison Supermarkets PLC (LON: MRW), DFS Furniture PLC (LON: DFS) and Findel plc (LON: FDL)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Most consumer goods companies fall into one of two camps: cyclical or defensive. The former, of course, indicates that the goods that the company sells are either not necessary or are a luxury purchase which can be avoided during challenging economic periods. The latter, meanwhile, are day-to-day items which are required and people could not do without.

Clearly, companies focused on necessity products such as food and clothing are likely to offer more stable financial performance than their cyclical peers. However, at the same time, cyclical companies can offer more upside in the long run – as long as you are able to stomach above-average volatility. Therefore, a mix of the two can prove to be a prudent and logical way forward for Foolish investors.

Cyclicals

With the UK economy continuing to go from strength to strength, cyclical consumer goods companies such as furniture seller, DFS (LSE: DFS), and Express Gifts owner, Findel (LSE: FDL), are on the up. Both companies are forecast to increase their earnings at a rapid rate, with DFS’s bottom line set to rise by 16% next year and Findel’s by as much as 21% in the current year. Clearly, such strong growth rates could act as positive catalysts on the share prices of the two companies, since they are at least double the growth rate of the wider index.

Despite this, both DFS and Findel trade on low valuation multiples, which indicate that they offer wide margins of safety. This appears to swing the risk/reward ratio in the investor’s favour, with DFS having a price to earnings growth (PEG) ratio of just 0.8 and Findel’s being even lower at 0.4. As such, and while they are cyclical businesses, they appear to be worth buying at the present time.

Defensives

Meanwhile, Unilever (LSE: ULVR) (NYSE: UL.US) and Morrisons (LSE: MRW) are far more defensive than DFS or Findel. In Unilever’s case, its defensive sales profile comes via the strength of its brands, since there are cheaper shampoos and other personal care products available.

However, even during challenging periods for the global economy, Unilever continues to command relatively high margins and, with over half of its revenue being derived from emerging markets, its growth rate is also very appealing. In fact, Unilever is set to grow its top line by 4.7% next year and, with cost savings and efficiencies to come through, its bottom line growth should be higher and could catalyse investor sentiment.

Of course, the sale of food is defensive since it is a necessity for all individuals. However, the pressure on household budgets in recent years has meant that many consumers have traded down to discount, no-frills operators such as Aldi and Lidl. This has meant that supermarkets such as Morrisons have lost out, with the company’s sales stagnating in the last five years, with heavy discounting and promotional offers causing margins to be squeezed heavily.

As such, Morrisons has made a loss in each of the last two years but, in the current year, it is expected to turn this around to post a profit of £377m on a pretax basis. And, with growth of 20% expected for next year, it could prove to be a surprisingly strong performer over the medium term – especially since it has a price to earnings (P/E) ratio of 15.6.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Findel, Morrisons, and Unilever. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »