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.

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 considered so you should 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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Why do Lloyds shares seem so cheap?

Lloyds shares have been losing ground and now look cheap on some valuations. So why has our writer removed the…

Read more »

Investing Articles

How to invest in shares to help beat inflation

Soaring prices could well outstrip our investing returns this year. I think it's more important to find shares to beat…

Read more »