I’m thinking of buying two FTSE 100 shares that have updated the market this week. The first is packaging group DS Smith (LSE: SMDS), the other is multinational fast-moving consumer goods company (FMCG), Unilever (LSE: ULVR).
Both had decent updates and I think that along with the economic recovery, they could be shares to add to my portfolio.
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A FTSE 100 share benefiting from e-commerce
Unlike some other FTSE 100 companies, DS Smith is tapping into a growing trend: shopping online. The rise of e-commerce will, I believe, continue to be strong after the pandemic.
In a trading update this week, the packaging group said it expects second-half corrugated box volumes to grow 7% year-on-year. It’s reaping the benefits of investing in facilities in many regions, including in Poland and the US. This could benefit future shareholders, as it could lead to higher revenues and profits. That should be the case if the return on investment is strong, which is likely, given the boom in e-commerce.
The downside with DS Smith is that its shares have tended to underperform. That’s a bit of a red flag given it’s so aligned with the rise in e-commerce. It’s also exposed to raw materials costs, which fluctuate, are beyond its control and can hit profitability. Past acquisitions also mean the group has more debt than in the past, but if it means stronger growth, investors may be willing to overlook that.
Having got rid of its plastics business, DS Smith has fewer environmental concerns than other packaging companies. Demand for cardboard boxes isn’t going to dampen in my view and on that basis, I think it’s a good buy-and-hold share.
The global FMCG group
Unilever is another potential strong buy-and-hold share among FTSE 100 companies. It recorded underlying sales growth of 5.7% in the first quarter. It also expects to deliver underlying sales growth in 2021 of 3-5%, in line with its expectations.
Its share price could be boosted in the short term by a share buyback, which will be starting in May. This is a not-always-popular way to use shareholder money, but in theory could support the share price.
Longer term, I’m confident about the company because it owns strong brands such as Dove, Domestos and Ben & Jerry’s. This gives Unilever potentially both pricing power and customer loyalty, especially in the food and beauty divisions. Its diversification across multiple product areas — as well as geographies — is also a major advantage, in my eyes. It’s not reliant on any one type of product or country to get its revenues or profits. That, to me, makes it a good buy-and-hold stock.
As lockdowns ease across much of the world, its beauty division could pick up volumes back to an almost-pre-pandemic level, which would help the business as a whole.
The risks are that consumers increasingly look to independent brands over the mass produced brands that are Unilever’s staple, or look to retailer own-brands for lower prices. Another is that Unilever may just be too big to effectively restructure, as it’s trying to do, for example by selling its tea business. It’s also potentially expensive at a P/E of around 19. Although that’s about in line with the 10-year average P/E and isn’t particularly high for an FMCG company.
