Why Growth & Income Hunters Must Check Out Unilever plc, Big Yellow Group plc & International Consolidated Airlns Grp SA?

Unilever plc (LON:ULVR), Big Yellow Group plc (LON:BYG) & International Consolidated Airlns Grp SA (LON:IAG): favourable tailwinds should allow earnings growth to continue.

| 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.

sdf

Finding growth stocks is becoming more and more challenging. As global economic growth slows, corporate profitability is weakening too. Many stocks have already reported earnings declines and more will likely do so in the coming months. But, as growth becomes more scarce, investors should become more willing to reward those companies with higher valuation multiples.

Here are three growth and income stocks that I find reasonably priced:

Making great strides

Despite the slowdown in emerging markets, Unilever (LSE: ULVR) continues to report steady growth in revenues and earnings. Underlying earnings per share (EPS) grew by 14% in 2015, thanks to continued innovations and the pricing power of its well-recognized labels such as Knorr, Lipton, Dove and Lynx.

Looking forward, the company faces a number of headwinds. Most notable of these are weakening consumer confidence in emerging markets, volatile currency movements and rising competition from smaller brands.

However, the effects of these headwinds should be more than offset by stronger tailwinds. Rising consumer spending in North America is supportive of further volume growth, whilst lower commodity prices will likely accelerate Unilever’s cost optimization plans and boost operating margins. In addition, Unilever is making great strides in expanding its presence in the growing premium end of the personal care market.

The outlook for earnings growth is positive. Underlying EPS is forecast to grow another 4% this year, giving it a forward P/E of 21.0. This puts it at a slight discount to its historical forward P/E of 22.0, and on top of this, shares in the company carry a reasonable dividend yield of 3%.

Great track record

Self-storage REIT Big Yellow Group (LSE: BYG) has a great track record in delivering robust earnings and net asset value (NAV) growth. Over the past five years, underlying EPS has more than doubled, having risen 109%, whilst NAV (with dividends included) has expanded 28%.

Big Yellow’s shares currently trade at a 38% premium to NAV, but this expensive valuation seems justified because of the REIT’s relatively stronger growth prospects. Management expects earnings to double again by 2022, thanks to rising demand across the UK and limited supply growth over the medium term.

This should be made possible by rising occupancy rates, which drives up margins, too. The fixed-cost nature of operating self-storage facilities means increasing occupancy does little to drive up operating costs, allowing much of the revenues to pass through to its profits. And, this combination of top-line and bottom-line growth helps earnings to grow much faster than revenues.

Strong demand

Airline group International Consolidated Airlines (LSE: IAG) benefits from a combination of favourable tailwinds. Passenger numbers are growing at a high single-digit rate, and strong demand for its long haul destinations is set to give its profitability a sizeable lift. City analysts expect underlying earnings to have grown by 73% in 2015, giving its shares an estimated P/E of 8.6.

Looking forward, lower fuel costs will continue boost margins, as the airline’s hedging activities delays the benefit of lower prices on its bottom-line. Underlying EPS is set to grow by another 42% this year, which lowers its forward P/E ratio to just 6.1.

IAG seems like a good pick for income investors too, who can look forward to the prospective dividend yield of 5.0% this year.

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.

Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended 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

piggy bank, searching with binoculars
Investing Articles

Up 82% in 12 months, this dividend stock still has a 5.5% yield!

This dividend stock has given investors growth and a strong yield in recent years. Dr James Fox explores whether there’s…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Over the last 3 years, this British investment fund has delivered nearly double the return of the FTSE 100

Thanks to his specific investment approach, this British fund manager has beaten the FTSE by a wide margin over the…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Analysts reckon the Vodafone share price is still undervalued!

Our writer’s been looking at the latest Vodafone share price forecasts and assesses how the group’s performed against the targets…

Read more »

Investing Articles

Considering a Stocks & Shares ISA in 2025? Make sure to avoid these pitfalls

Mark Hartley outlines a few basic tips for investors to ensure opening a first-time Stock and Shares ISA goes as…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

What will take the Lloyds share price beyond 80p?

The Lloyds share price has leapt by 40% in the last six months. It's also soared by 135% in five…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

Want to become an ISA millionaire? Here’s one way to target stock market riches with £500 a month

Making a million pounds or more in an ISA doesn't have to be a pipe dream. Here's how a mix…

Read more »

Light bulb with growing tree.
Investing Articles

Could the ITM Power share price be set to soar like Rolls-Royce?

The Rolls-Royce share price has risen 10-fold since 2022. Could this under-the-radar UK growth stock deliver similar returns in the…

Read more »

Close-up of British bank notes
Investing Articles

Turn £20k into a £1k second income this summer? Here’s how!

With £20k, our writer thinks a portfolio of blue-chip shares could help an investor earn a four-figure second income each…

Read more »