3 stocks with 30% upside: Unilever plc, Sports Direct International plc and WM Morrison Supermarkets plc

Today’s full-year results release from Sports Direct (LSE: SPD) shows that the retailer has endured a tough 12 months. Although sales rose by 2.5% versus the prior year, a difficult operating environment in the second half meant that underlying pre-tax profit fell by 8.4%.

Looking ahead, more challenges are expected in the current year, with Sports Direct forecast to record a further fall of 8% in earnings in the period to April 2017. This could hurt investor sentiment in the short run and as a result of the company being heavily UK-focused, the impact of Brexit and the potential for declining consumer sentiment could cause Sports Direct’s forecasts to come under pressure.

However, as was the case in the last downturn, discount retailers such as Sports Direct can weather an economic storm much better than mid-tier operators. Therefore, the impact of Brexit may not be quite as marked as for a number of its retail sector peers. And with Sports Direct trading on a price-to-earnings (P/E) ratio of 8.3, a 30% rise in its share price would still leave it trading on a very low rating of 10.9.

Turnaround continues

Also enduring a tough period in recent years has been Morrisons (LSE: MRW). The supermarket chain has seemingly been behind the curve regarding online shopping and convenience stores, with many of its peers enjoying growth in both those areas.

However, Morrisons has now moved away from convenience stores as its venture into that space proved to be somewhat disappointing. This is part of a new strategy to return Morrisons to its core offering of good value, fresh food and it’s also seeking to leverage its status as a major food producer to expand sales and profitability over the medium-to-long term.

Its ability to execute this new strategy is likely to have a major impact on its shares and it seems to be a case of ‘so far, so good’ in this regard. For example, Morrisons is forecast to increase its bottom line by 31% this year and by a further 10% next year. With its shares trading on a price-to-book (P/B) ratio of only 1.1, there seems to be at least 30% upside on offer as the Morrisons turnaround story continues.

Still rising

One company that’s not struggling at the moment is Unilever (LSE: ULVR). Its exposure to emerging markets is not only providing it with useful diversity while the outlook for the EU remains uncertain, but also looks set to generate a stunning level of growth in the long run. With incomes in China, India and the rest of the developing world rising at a brisk pace and demand for consumer staples and discretionary goods being robust, Unilever seems to have the perfect mix of defensive and growth attributes.

It’s little wonder, therefore, that Unilever’s shares have risen by 25% since the turn of the year. Although they trade on a P/E ratio of 24.9, the reality is that Unilever is likely to record high-single-digit growth in earnings over the long run. Therefore, assuming it keeps the same rating as at present, its shares could realistically be 30% higher within the next few years. And due to the potential for increased uncertainty, Unilever could become even more popular among nervous investors and this could push its valuation higher.

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Peter Stephens owns shares of Morrisons and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.