Sector Screener: two FTSE 100 stocks with long-term appeal

The FTSE 350 Industrial Support Services sector has slumped by 7% since the war in Iran began at the end of February. Indeed, investors have become increasingly concerned about the sector’s near-term outlook due to its relative cyclicality.

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Crucially, previous assumptions that a period of modest inflation and further interest rate cuts is ahead could prove to be grossly misplaced. Oil and gas prices have spiked over recent weeks in response to conflict in the Middle East. This could ultimately filter through to higher-than-expected rates of inflation across developed economies over the coming months, which prompts central banks to adopt a more cautious attitude towards monetary policy easing.

In fact, the Bank of England was previously expected to reduce interest rates at its March meeting but decided to hold them at 3.75% in response to the potential for higher-than-expected inflation. Further caution from policymakers across developed markets over the short run may mean that tighter, rather than looser, monetary policy results. This would be unhelpful for the world economy’s near-term growth rate and the short-term outlook for the FTSE 350 Industrial Support Services sector.

Buying opportunities

Of course, an uncertain near-term economic outlook and the lower share prices it brings can present excellent long-term buying opportunities for investors. Cheaper stocks provide scope to purchase high-quality companies at more attractive prices than would normally be the case. This allows for the prospect of sizeable upward re-ratings to earnings multiples that can have a material impact on capital returns over the long run.

With regards to industrial support services members, the sector’s poor performance over recent years means that, in some cases, they were already trading at appealing prices even prior to the war in Iran. Indeed, the sector is down 6% over the past five years. This compares to a 39% rise for the FTSE 350 index over the same period, with challenges such as a global trade war weighing on the sector’s performance, especially over recent months.

It would be unsurprising, of course, for the sector to further lag the wider stock market while elevated geopolitical and economic uncertainty persists, given its inherent cyclicality. However, in the long run, history suggests that the industry’s incumbents are likely to enjoy increasingly upbeat operating conditions.

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After all, previous periods of elevated geopolitical and economic uncertainty have proved to be only temporary in nature. Ultimately, economic threats being faced today, notably the potential for above-target inflation and tighter monetary policy, as well as prospective lacklustre GDP growth, have previously never lasted in perpetuity and have instead given way to more upbeat conditions that are conducive to revenue and profit growth among cyclical firms.

Source ShareScope. Data at 26 March 2026. Past performance is not a guide to future performance.

Relative consistency

Precisely when upward re-ratings to industrial support services constituents and a more upbeat economic outlook could take place are, clearly, known unknowns. Investors must therefore adopt a patient attitude towards any new holdings and accept that geopolitical and economic risks could worsen before they improve.

Moreover, any holdings must be able to overcome the potential for reduced demand for their products and services associated with a weaker near-term economic outlook. In the case of industrial support services companies, in several instances they have excellent track records of delivering relatively consistent financial performance, despite an uncertain operating environment.

Firms that offer a degree of financial resilience despite being cyclical, alongside a sound balance sheet and competitive advantage, may be best placed to survive near-term economic risks and deliver attractive capital returns in the long run, as their operating environment gradually improves and they potentially benefit from upward re-ratings.

Source ShareScope. Data at 26 March 2026. Past performance is not a guide to future performance.

Intertek

For example, having fallen by 22% since the start of March, Intertek Group (LSE:ITRK)’s shares now trade on a price/earnings (PE) ratio of 14. This suggests there is scope for an upward rerating at a time when the FTSE 100 has an earnings multiple of 17.9.

The FTSE 350 Industrial Support Services member’s shares, of course, have been weaker of late not only due to an uncertain economic outlook, but also because its recent annual results slightly missed investor expectations regarding revenue growth.

Still, the provider of testing, inspection and assurance services to a variety of industries delivered a 10.1% rise in earnings per share (EPS). As a result, it has produced three consecutive years of double-digit EPS growth.

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Encouragingly, the annual results showed that its operating profit margin rose by 90 basis points to 18.1%. This suggests that its competitive position is improving, with it targeting an operating profit margin of over 18.5% in the medium term, as it continues to benefit from cost control and a focus on higher-margin segments. When combined with further anticipated sales growth, this means the company is forecast to post a 7% annualised rise in EPS over the next two years.

Its growth rate could realistically be further boosted by additional acquisitions, with the company having made four purchases for a combined total of £156 million in its latest financial year. Crucially, Intertek appears to have the financial strength to engage in further M&A activity. Its net interest costs, for example, were covered 12.2 times by operating profits in its latest financial year.  

While a solid financial position does not mean the company is immune from a period of economic and geopolitical uncertainty, it appears to be well placed to overcome it. When allied with the potential for margin growth, acquisitions and upbeat profit forecasts, as well as a margin of safety, the stock appears to offer a favourable risk/reward opportunity for the long term.

Diploma

Fellow sector member Diploma (LSE:DPLM) also appears to have long-term investment potential. The distribution company, which supplies a variety of specialist products to firms across a wide range of industries, has produced an 18% annualised rise in EPS over the past seven years, despite challenges such as the pandemic and the threat of increased protectionism being present during that time.

Interestingly, Diploma’s share price moved sharply lower in the immediate aftermath of the commencement of the war in Iran, as per the wider sector. However, it has since more than fully rebounded after the firm released significantly upgraded guidance for the current financial year.

It now expects organic revenue growth of 9% (previously 6%) and an operating profit margin of 25% (previously 22.5%), with the latter figure suggesting that its competitive position is improving. Overall, the firm is forecast to deliver a 20% rise in EPS in the current year, which is likely to be substantially ahead of the wider stock market’s growth rate.

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The company’s financial position suggests it is well placed to overcome a potentially challenging operating environment. For example, it has a net debt-to-equity ratio of 39%, while net interest costs were covered 12.6 times by operating profits in its latest financial year. This provides the financial means to make further acquisitions following the £130 million spent on eight purchases in the most recent two quarters, which could act as an additional catalyst on its bottom-line growth rate.

Trading on a PE ratio of 27, Diploma’s shares are extremely expensive. Indeed, their earnings multiple is roughly twice that of the FTSE 100. However, the company still appears to offer good value for money based on its sound competitive position, solid balance sheet and excellent track record of growth amid an uncertain economic environment.

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