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

Smart young brown businesswoman working from home on a laptop
Investing Articles

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

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

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »