Investors need to be careful with growth stocks. Shares in companies with the potential to increase their earnings often come with high price tags, making the investment equation less attractive.
The key, in my view, is to find opportunities where the outlook is better than the market might be expecting. And a couple of names from the FTSE 100 stand out to me at the moment.
Bunzl
Bunzl (LSE:BNZL) is a FTSE 100 distribution business that ships things like carrier bags, food packaging, and hygiene products. Around 60% of its revenues come from the US.
The firm’s most recent trading update reported a decline in underlying revenues. But like Unilever, there are a couple of reasons for thinking things are brighter than they look.
One is that a lot of the drop seems to have been due to the dollar weakening against the pound between July and September. But this has already reversed over the last couple of months.
Another is the company has a strong acquisition pipeline to drive future revenue increases. In 2024, the firm has announced 11 deals and it expects more to come next year.
Investors should keep an eye on how the firm plans to finance its growth though. It’s currently above its leverage target and that represents a risk for potential shareholders to consider.
Overall, though, Bunzl looks like a strong business with a competitive position that keeps improving as it grows. I think it could be one to watch carefully in 2025.
Unilever
Unilever (LSE:ULVR) probably isn’t the first FTSE 100 name that comes to mind for investors thinking about growth. But the company has done very well in 2024.
The firm is expecting to report an increase in sales of roughly 5%. In my view though, the most impressive thing is where that growth is coming from.
Unilever’s strong brand portfolio should allow it to raise prices over time. But aside from its ice cream business – which it plans to divest – this isn’t where growth has been found.
Rising sales have largely been driven by higher volumes. This suggests to me that the company can increase prices later to unlock further revenue growth over time.
With this type of business, consumers switching to other products – either due to price or preference – is always a risk. There are no contracts here that secure long-term revenues.
That means Unilever will have to rely on its brand power to keep growing sales. But it has done a good job of this in 2024 and I expect this to continue next year as its restructuring continues.
Buying opportunities?
Neither Bunzl nor Unilever is an obvious bargain right now. Both trade at price-to-earnings (P/E) ratios of over 20 – well above the FTSE 100 average.
Both are stocks for my watchlist though, as their future prospects are easy to underestimate. They’re steady, rather than spectacular, but consistency could be a winning formula over time.
I expect both businesses to keep moving forward in 2025. And if a better opportunity presents itself, I’ll look to buy the stocks.
