Sector Screener: the blue-chip giant to buy for the long term

The performance of the FTSE 350 Personal Care, Drug and Grocery Stores sector has severely lagged that of the wider stock market over recent years.

In the past 12 months, for example, it has declined by 2% and underperformed the FTSE 350 index by 19 percentage points. And over the past five years, more strikingly, its 4% gain appears rather paltry when compared to the index’s 42% rise over the same period.

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A tough near-term consumer outlook

Of course, a challenging period for consumers has weighed on both the financial performance of sector members and investor sentiment towards them. For example, UK inflation has exceeded the Bank of England’s 2% target in 56 out of the past 60 months.

This has put pressure on disposable incomes, thereby prompting consumers to become more price conscious and squeezing sales and profit margins across the sector. Persistent above-target inflation has also led to a tighter monetary policy overall in recent years that has acted as a drag both on wage growth and the UK economy’s performance.

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It is a similar story in other developed markets such as the eurozone and the US, where several sector members have substantial exposure. Indeed, sticky inflation prompted the European Central Bank (ECB) to return to interest rate rises in June after it had previously begun to implement a looser monetary policy.

The Federal Reserve, moreover, raised its short-term interest rate expectations at its June meeting. As a result, the near-term outlook for consumer-focused stocks in the FTSE 350 Personal Care, Drug and Grocery Stores sector remains uncertain.

A long-term consumer recovery

While the sector’s disappointing performance could therefore persist in the short run, an upbeat long-term outlook for consumers across developed markets is set to act as a catalyst on its returns over the coming years.

Although inflation in the UK, US and the eurozone remains substantially above central bank targets at present, it is forecast to decline to roughly 2% in all three geographies by the end of 2028. As well as easing pressure on disposable incomes, this should provide scope for sustained monetary policy easing that, once time lags have passed, boosts real-terms wage growth.

In turn, this should support higher demand for the wide range of consumer-related products sold by sector incumbents. It could also provide scope for price increases among such firms, given that consumers may begin to increasingly focus on non-price factors such as quality and convenience as they enjoy greater spending power.

Rising prices are likely to aid profit margins across the sector, thereby boosting the financial performance of its members over the coming years. This may act as a positive catalyst on their share prices and, just as importantly, lead to improving investor sentiment from what is currently a relatively low level.

Source: ShareScope. Data at 9 August 2026. Past performance is not a guide to future performance.

Wide margins of safety

Indeed, several members of the FTSE 350 Personal Care, Drug and Grocery Stores sector trade on relatively attractive market valuations following their disappointing share price performances over recent years. This could mean that long-term investors are able to benefit from upward re-ratings, and subsequent capital gains, as their operating outlooks gradually improve.

The wide margins of safety presently on offer within the sector also appear to factor in ongoing elevated geopolitical risks, such as conflict in the Middle East and increasingly protectionist trade policies, that could have a negative impact on the economy’s prospects and their financial performance.

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As a result, and in spite of their relative cyclicality, sector incumbents may be well placed vis-à-vis the wider FTSE 350 index to overcome the potential impact of heightened geopolitical uncertainty. And with several sector members having solid balance sheets that contain only modest amounts of debt, their risk/reward ratios appear to be favourable. This could mean that they offer investment appeal on a long-term view.

An attractive market valuation

For example, FTSE 350 Personal Care, Drug and Grocery Stores sector incumbent Unilever (LSE:ULVR) appears to offer good value for money following its disappointing share price performance over recent years.

The owner of well-known brands such as Dove, Domestos and Surf has delivered a 6% share price decline over the past year and is up just 3% in the past five years, thereby underperforming the wider sector’s return over both periods.

As a result, the FTSE 100 member now trades on a price-to-earnings (P/E) ratio of 17.5. This is slightly below the UK large-cap index’s earnings multiple of 18.1 and suggests there is scope for an upward rerating.

Indeed, investor sentiment could be boosted by an improvement in the company’s financial performance. It is likely to benefit from stronger operating conditions in developed markets, which account for 40% of its revenue, as they gradually experience falling inflation and a potentially looser monetary policy over the coming years.

Emerging market growth opportunities

Furthermore, Unilever’s sales and profit growth are likely to benefit from its significant exposure to emerging markets. They account for the remaining 60% of its revenue, with the company’s recently released half-year results highlighting the positive impact of fast-growing economies across Africa, Latin America and Asia Pacific on its financial performance.

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Indeed, it recorded underlying sales growth of 7% in emerging economies in the first six months of the current year. This compares favourably with underlying sales growth of 1.5% in developed economies and contributed to an overall growth figure of 4.8% for the wider business.

And with the International Monetary Fund (IMF) currently expecting emerging market and developing economies to deliver growth of 3.8% this year and 4.5% next year, Unilever’s significant exposure to them is likely to further bolster its financial performance over the coming years.

Source: ShareScope. Data at 9 August 2026. Past performance is not a guide to future performance.

A revised growth strategy

Alongside an upbeat outlook for its operating environment, the company is in the midst of implementing major changes to its structure that could act as a further catalyst on its bottom-line growth rate.

For example, it demerged its ice cream business last year and, earlier this year, struck a deal to separate its foods business. Although this latter decision prompted some concern among investors, the foods division was the company’s slowest-growing segment in the first half of the year. It delivered underlying sales growth of just 1.2% versus figures of at least 4.8% from the firm’s other segments.

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As well as refocusing on its fastest-growing segments that could offer greater long-term profit potential, the firm recently completed an €800 million (£684 million) productivity programme ahead of schedule. This contributed to a 10 basis point increase in its operating profit margin in the first half of the year, which stood at 20.3%, with the company also upgrading its financial guidance for the full year.

A favourable risk/reward opportunity

Clearly, the firm’s share price could display elevated volatility in the short run as an uncertain near-term consumer outlook across developed economies potentially weighs on its financial prospects and investor sentiment.

However, with Unilever having diverse geographical exposure, a wide range of valuable brands and net interest cover of 16.2 in the first half of its current year, it has solid fundamentals through which to overcome prospective industry challenges.

Moreover, with the company offering good value for money based on its long-term growth prospects, it appears to have a favourable risk/reward opportunity. When combined with its sound strategy and exposure to fast-growing markets, it could deliver sector-beating, as well as index-beating, capital returns over the long run.

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