A wide range of FTSE 100 share prices have come under pressure in the last six months. Investor sentiment seems to have declined as a result of uncertainties facing the UK and world economies.
Certainly, there has been an improvement in recent months, but the Morrisons (LSE: MRW) share price is still down 13% on its level from six months ago. Here’s why I think it could offer a successful recovery, and may be worth buying alongside another unpopular share that released an encouraging update on Wednesday.
The company in question is Imperial Brands (LSE: IMB). Its trading update showed that it is on track to meet its financial expectations for the full year. Its next-generation products have delivered strong performance, while it is on track to record modest revenue growth in its tobacco segment. It continues to invest in next-generation products, which could provide it with an improving financial outlook in the long run.
Of course, Imperial Brands is a changing business. Like many of its sector peers, it is seeking to adapt to changing regulations and evolving customer tastes through providing less harmful products. They have been popular thus far, and could represent a growth area for the company. As such, while it may be losing some of its defensive appeal, the business may offer improving growth potential over the long run.
Since the stock trades on a price-to-earnings (P/E) ratio of just 9.2 after its share price decline of 5% in the last six months, it could offer improving returns in the long run. As a result, now could be the right time to buy it.
As mentioned, the Morrisons share price has experienced a turbulent period in recent months. Uncertainty surrounding the prospects for the UK economy has caused investors to demand wider margins of safety across the retail industry, which has meant that valuations have gradually moved lower.
Even though the prospects for the UK economy are uncertain, expansion plans remain highly ambitious across the sector. The likes of Aldi and Lidl are expected to rapidly increase the number of stores they have in the UK, which could put Morrisons under added pressure. With consumer confidence being at its weakest level in around five years, consumers may become increasingly price conscious. This could lead to squeezed margins – especially with budget retailers increasing the size of their addressable market through expansion programmes.
Despite this, Morrisons is pivoting towards its wholesale and online operations. They could provide it with additional growth in the long run, and may allow it to adapt to changing consumer tastes. With its bottom line forecast to rise by 9% in the current year, it appears to be performing well, and could deliver a successful share price recovery over the long run.
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Peter Stephens owns shares of Imperial Brands and Morrisons. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.