Sector Screener: two FTSE 100 stocks to deliver share price gains

At first glance, the outlook for consumer-focused companies may appear to be overwhelmingly downbeat. After all, the UK’s inflation rate remains 140 basis points above the Bank of England’s 2% target. Furthermore, the central bank expects it to rise to 3.7% in the coming months, thereby putting even greater pressure on disposable incomes.

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Additionally, interest rate cuts enacted since August last year are yet to have their full impact on wage growth due to the existence of time lags. And while the economy expanded by 0.7% last quarter, the Bank of England expects its growth rate to decline to just 0.1% in the second quarter of the year.

Companies operating outside the UK face similar challenges. In the US, for example, the economy contracted at an annualised rate of 0.2% in the first quarter, while inflation is above target and interest rates remain relatively high.

Although inflation in the eurozone now stands 10 basis points below the central bank’s target at 1.9% and the region’s first-quarter GDP growth amounted to a much improved 0.6%, an ongoing global trade war could weigh on the world economy’s prospects.

Indeed, investors in cyclical companies, which typically include consumer-related firms, could be among the most affected by continued uncertainty and share price volatility.

A long-term view

As ever, though, investors in consumer-focused firms who can look beyond both present circumstances and the near-term future are likely to ultimately be rewarded.

Inflation is undoubtedly sticky across developed economies, and it may take some time for it to return to central bank targets on a consistent basis. But it is arguably not currently high enough to prompt severe challenges for consumers. Moreover, it is not forecast to rise to anywhere near the levels experienced over recent years, when it reached double-digits in the UK and the eurozone.

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Indeed, in the UK, wages have risen at a faster pace than inflation since April 2023. This means that consumers have been experiencing improved spending power for an extended period, which suggests that operating conditions for consumer-focused firms are better than many investors currently realise.

Moreover, interest rate cuts enacted in the UK, US and the eurozone are likely to begin to have their intended impact on the economy over the coming months. Further monetary policy easing should act as an additional catalyst on wage growth, thereby boosting purchasing power to a greater extent and helping to raise demand for a wide range of consumer goods.

Source ShareScope. Data as at 11 June 2025. Past performance is not a guide to future performance.

Source ShareScope. Data as at 11 June 2025. Past performance is not a guide to future performance.

Attractive valuations

Clearly, the above scenario may not play out in perfect harmony. As mentioned, the global trade war could lead to difficult trading conditions for consumer-related firms. For example, it may weaken the wider economy’s performance and negatively affect demand for a wide range of consumer goods.

Sticky inflation, which was initially expected to be temporary, may also take longer than expected to persistently meet central bank targets. This could delay the process of monetary policy easing and its positive impact on disposable incomes.

However, the underlying trend for inflation and interest rates appears to be downwards. Long-term investors who purchase high-quality consumer-focused stocks are likely to benefit as such companies generate improved financial performance amid stronger operating conditions. And while the global trade war could yet create short-term volatility, the track record of GDP growth across developed economies suggests they will ultimately overcome it to deliver expansion rates that are in line with their long-term average.

In some cases, investors appear to have already factored in a challenging and uncertain near-term outlook for consumer-focused firms. This means that it may be possible to purchase companies which have a solid balance sheet and a sustainable competitive advantage at a relatively low price. Doing so could provide scope for attractive capital gains as their operating conditions ultimately improve.

Source ShareScope. Data as at 11 June 2025. Past performance is not a guide to future performance.

Encouraging progress

The Personal Care, Drug & Grocery Stores sector contains several consumer-focused firms that could benefit from an improving long-term global economic outlook. For example, sector incumbent Unilever (LSE:ULVR) sells a wide range of well-known brands such as Dove, Hellmann’s and Cif across a variety of geographic locations.

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The FTSE 100 company’s latest trading update showed that underlying sales grew by 3% in the first quarter of its current financial year. While this is somewhat disappointing, the firm continued to make progress with its productivity improvements. It currently expects to deliver €550 million (£468 million) in savings by the end of the current year.

This should have a positive impact on profit margins, with the company expecting to post sales growth of 3-5% in 2025. Alongside this, the firm is on track to separate its ice cream segment in the final quarter of the year. It is set to be demerged from the company, which should create a leaner Unilever that is better placed to reinvest in its core brands.   

Risk/reward opportunity

Encouragingly, Unilever’s financial position suggests it is capable of overcoming an uncertain near-term global economic outlook. Its net interest costs, for example, were covered over 15 times by operating profits in its most recent financial year.

The company’s competitive position, of course, further enhances its near and long-term prospects. In the short run, brand loyalty could mean that consumers continue to purchase its products in favour of cheaper options, even if their spending power comes under pressure. And in the long run, a loyal customer base provides pricing power that could create scope for improved profit margins.

Trading on a forecast price/earnings (PE) ratio of 18.6, Unilever’s shares are by no means cheap – especially amid the present uncertain operating environment. They have risen by 14% since first being discussed in this column during June 2023, which compares with a 19% capital gain for the FTSE 100. Given the company’s sound strategy, solid fundamentals and upbeat long-term industry outlook, it appears to offer investment potential.

Major changes

Another member of the Personal Care, Drug & Grocery Stores sector, Reckitt Benckiser Group (LSE:RKT), also appears to have an upbeat long-term outlook. Shares in the FTSE 100 consumer goods company, which owns popular brands including Dettol, Nurofen and Finish, have fallen by 15% since first being discussed in this column during June 2023. In doing so, they have lagged the wider index by 34 percentage points.

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The firm, of course, is undergoing a period of significant change. It is in the process of seeking to exit its Essential Home products segment, as well as considering potential options for its infant formula business, that would leave it focused on a smaller number of core brands that the company believes offer superior long-term growth prospects.

A modest valuation

Reckitt Benckiser’s latest quarterly results showed that its core brands delivered like-for-like sales growth of 3.1%. While somewhat disappointing, the firm was able to improve its market position by growing market share in North America and Europe. When combined with high levels of brand loyalty, this suggests it has a strong competitive position. The firm also has a solid balance sheet. For example, net interest costs were covered 7.6 times by operating profits in its most recent financial year.

Following their decline, the company’s shares now trade on a forecast PE ratio of 14.8, which suggests they offer a margin of safety. Over the long term, Reckitt Benckiser’s revised strategy and improving operating environment could catalyse its financial and share price performance. Therefore, despite delivering disappointing share price returns over recent years, it appears to offer a favourable risk/reward opportunity.

Robert Stephens is a freelance contributor and not a direct employee of interactive investor.