We recently compiled a list of the 10 Best UK Stocks to Invest in Now. In this article, we are going to take a look at where Unilever PLC (NYSE:UL) stands against the other best UK stocks.
The OBR (Office for Budget Responsibility) anticipates economic output in Britain to expand by 1.8% in 2026 and by 1.5% in 2027. In September 2024, KPMG reported that The Bank of England might take a more cautious approach when it comes to easing monetary policy as compared to the Fed and the ECB, with gradual cuts resulting in the UK base rate to 3.5% by 2025 end.
Furthermore, the labour market will continue to loosen, with fewer vacancies, and subdued pay growth but a relatively modest rise in the unemployment rate. KPMG went on to add that business investment might see some recovery next year if geopolitical uncertainties ease and the impact of reduced rates and the improving growth outlook offer businesses the confidence to commit to their investment plans.
What to expect from the UK Economy?
As per the new EY ITEM Club Autumn Forecast, the UK economy should grow 0.9% in 2024, down from the 1.1% growth expected in July’s Summer Forecast. The downgrade exhibits that household savings are now lower than expectations, providing less scope for consumers to increase their spending. Furthermore, lower-than-anticipated increases in consumer spending, together with cautious rate cuts to the Bank Rate, demonstrate that UK growth is expected to be steady rather than rapid over the upcoming 2 years.
EY added that business investment is expected to accelerate moderately in the coming years, with rate cuts providing a boost to the private sector. Therefore, the UK business investment should grow to 1.3% in 2024, an increase from the 1% expected earlier. Private sector investment is anticipated to accelerate to 3% in 2025, demonstrating a small downgrade from projections of 3.2% growth in its Summer Forecast.
Inflation Outlook for the UK Economy
EY expects that inflation is expected to average 2.6% in 2024 before falling marginally to 2.5% in 2025 and 2.1% in the following year. The firm believes that this ‘stickiness’ is because of several factors, such as tightness in the broader labour market, and the gradual slowing of pay growth. With spending growth anticipated to be lower than the earlier expectations because of reduced household saving rates, it projects consumer spending to rise by 0.8% in 2024.
EY expects that gradual cuts to the Bank Rate might provide some benefits to the UK’s housing market. It projects house price growth of 1.7% in 2024, and 2.1% in 2025, with declining borrowing costs anticipated to help offset other affordability challenges. Notably, the looser monetary policy is expected to have a modest impact on growth over the short term. Several borrowers on fixed rates will not experience the decline in their mortgage payments and a significant minority might refinance a fixed mortgage to a higher rate, despite a decline in Bank Rate.
Our Methodology
To list the 10 Best UK Stocks to Invest in Now, we used a screener to extract UK stocks. Next, we narrowed our list by selecting the ones having high hedge fund holdings. Finally, the stocks were ranked in an ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A financial analyst at his computer monitor, tracking the public company’s investments.
Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 21
Unilever PLC (NYSE:UL) operates as a fast-moving consumer goods (FMCG) company in the Asia Pacific, Africa, the Americas, and Europe. The company has its headquarters in London, the United Kingdom.
Unilever PLC (NYSE:UL)’s entrenchment in the retailers’ supply chain, brand power, and cost advantage are some measures that can provide it with a competitive edge. Pricing is expected to be the main driver of top-line growth. Unilever PLC (NYSE:UL)’s focus on refining market strategies in Indonesia and China should yield positive results. Experts believe that the expected benefits in Indonesia should be visible by H2 2025. They expect moderate pricing adjustments amidst rising commodity costs.
Unilever PLC (NYSE:UL)’s Growth Action Plan (GAP) is expected to transform long-term performance, with a strong emphasis on brand development and net productivity. The operational improvements and strategic innovations under the GAP should continue to bear fruit. Its commitment to brand development remains evident in the positive volume growth and resilience in key markets like North America.
In Q3 2024, Unilever PLC (NYSE:UL) saw underlying sales growth of 4.5%, with volume growth rising to 3.6%. The company highlighted that its productivity programme and separation of the Ice Cream business remain on track. The separation activity is expected to be completed by 2025 end. The separation is expected to result in a more focused Unilever PLC (NYSE:UL). This means it will be a simpler business, with a focused portfolio. During the quarter, the underlying sales growth was aided by its Power Brands, with strong performances mainly coming from Dove, Liquid I.V., Comfort, and Magnum. Notably, price growth moderated in line with its expectations.
For FY 2024, the company expects underlying sales growth of 3% – 5% and an underlying operating margin of at least 18%. Bank of America upped the shares Unilever PLC (NYSE:UL) from an “Underperform” rating to a “Buy” rating, increasing the price objective from $47.00 to $72.00 on 22nd August. Polen Capital, an investment management company, released its fourth-quarter 2023 investor letter. Here is what the fund said:
“Unilever PLC (NYSE:UL) was a relative underperformer during the fourth quarter though this underperformance appears to us to be less a factor of any specific fundamental issues with the company. Rather, it seems more a result of consumer staples companies like Unilever underperforming during a quarter in which the broad market rallied sharply through much of November and December.
UK-based Unilever, among the largest consumer goods companies in the world, has navigated the last few years well. During the post-COVID inflation surge, Unilever’s brands enjoyed consistent pricing power and delivered higher-than-average revenue growth. Recently, signs of softening consumer spending have appeared. Inflation measures are now softening, and at the margin, consumers are switching away from branded goods in favor of generic products. Considering decelerating growth, we trimmed our Unilever position and added to Medtronic.”
Overall, UL ranks 9th on our list of the 10 Best UK Stocks to Invest in Now. While we acknowledge the potential of UL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than UL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
