Sector Screener: two FTSE 350 stocks for long-term growth

The world economy has experienced an incredibly challenging period over recent years. A pandemic prompted a severe downturn in global GDP growth that was followed by rampant inflation which led to a sharp rise in interest rates across developed economies.

While monetary policy easing has subsequently been implemented in the US, eurozone and the UK over recent months amid moderating inflation, conflict in the Middle East and resulting energy price increases mean the outlook for interest rates is now extremely unclear.

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Indeed, monetary policy tightening could realistically be ahead in all three regions. This could have a negative impact not only on their own GDP growth rates, but also on the global economy’s performance.

Growth potential

Clearly, this would be very unhelpful for companies that are highly reliant on the world economy’s growth prospects. As a result, many investors may feel that avoiding cyclical firms in favour of companies with defensive attributes, or even other mainstream assets whose prices are less volatile, may be a shrewd move.

However, the near-term outlook for the world economy may not be quite as downbeat as some investors assume. In fact, large parts of the world economy continue to have extremely strong growth potential in the coming years.

Emerging markets such as India and China, for example, are forecast to deliver annualised GDP growth of 6.5% and 4.2%, respectively, over the next two years, according to the International Monetary Fund (IMF). The US economy, meanwhile, is due to expand at a still impressive 2.2% annualised rate over the same period.

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Cyclical companies that are exposed to such economies could, therefore, deliver brisk profit growth that catalyses their share prices. Indeed, it is currently not particularly difficult to unearth FTSE 350 stocks that offer above-average earnings growth forecasts over the next couple of years and, as a result, provide upbeat prospects for share price appreciation.

Buying opportunities

The world economy, furthermore, has an excellent track record of delivering strong growth over the long run. Even if today’s elevated geopolitical and economic uncertainties prompt a period of weaker GDP growth in the short run, history shows that the world economy has always ultimately returned to its long-term average growth rate over a multi-year time horizon.

For example, events such as the oil crisis in the 1970s and the global financial crisis in the late 2000s caused severe disruption across vast swathes of the world economy for extended periods. Ultimately, though, the global GDP growth rate returned to positive levels.

Periods where its outlook is temporarily uncertain have, therefore, provided buying opportunities for long-term investors. Indeed, it is possible to use the inherent cyclicality of the world economy, and the subsequent downbeat investor sentiment that it often causes, as an opportunity to purchase high-quality companies at temporarily depressed prices.

Source: ShareScope. Data at 13 May 2026. Past performance is not a guide to future performance.

Attractive market valuations

Although the FTSE 350 currently trades within 6% of the all-time high it reached in February this year, the index has a relatively modest earnings multiple of 16.3.

This is lower than the price/earnings (PE) ratios of other developed market indices such as the DAX and the S&P 500, which have earnings multiples of 16.9 and 27.1, respectively, and suggests there are opportunities to purchase undervalued UK-listed stocks with exposure to the global economy.

Of course, such stocks could display elevated levels of volatility in the short run. A further rise in inflation and any resulting tightening of monetary policy, for example, may prompt weaker investor sentiment that leads to share price declines. Similarly, the situation regarding conflict in the Middle East remains highly fluid, which may have a material impact on stock markets over the coming weeks.

Investors who can take a long-term view of prospects for share prices and the world economy, though, could be in a strong position to use near-term economic uncertainty to successfully position themselves for long-term growth. For example, stocks such as IMI and Renishaw, which are both members of the FTSE 350 Electronic & Electrical Equipment sector, appear to offer favourable risk/reward opportunities on a long-term view.

Source: ShareScope. Data at 13 May 2026. Past performance is not a guide to future performance.

IMI

IMI’s recently released quarterly trading update stated that it is on track to meet financial guidance for the full year. The FTSE 100 engineering firm is forecast to deliver annualised earnings growth of 7% over the next two financial years following a highly consistent performance in recent years.

Indeed, despite challenges affecting the world economy, the company’s bottom line has risen every year since 2019 and increased at a double-digit compound annual growth rate (CAGR) over the past six years.

Encouragingly, the firm’s latest update stated that it expects price rises among its products to offset any additional inflationary pressures caused by the recent spike in energy prices. In fact, recent increases in its profit margin, which rose by 30 basis points to 20% at the operating level during its latest financial year, suggest it has an improving competitive position that bodes well for its long-term growth prospects.

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So, too, does a solid financial position. IMI’s net debt-to-equity ratio of 48% is relatively low, while a net interest coverage ratio of 26 is sufficiently high to indicate it is well placed to overcome near-term economic uncertainty. Indeed, with 6% of the firm’s revenue being generated in the Middle East, it would be unsurprising for its share price to display further elevated volatility in the short run should geopolitical risks in the region increase.

Trading on a forward earnings multiple of 19.2, the stock is not particularly cheap relative to the wider FTSE 350 index. However, its solid fundamentals and consistent growth over recent years suggest that it is both worthy of an elevated market valuation and has the potential to deliver index-beating returns over the long run.

Renishaw

Similarly, sector peer Renishaw appears to have an upbeat long-term investment outlook. The company, which specialises in precision measurement and process control products used across a wide range of industries, recently upgraded its financial outlook for the current year.

It is benefiting from high demand among customers in the aerospace & defence and semiconductor & electronics manufacturing sectors as they experience buoyant trading conditions. As a result, it is forecast to post a 16% annualised rise in earnings over the next two financial years. This helps to justify what is a relatively high forward PE ratio of 31.1 following its 45% share price surge since the start of the year.

Renishaw’s financial position further indicates that it could be worthy of a premium market valuation versus its FTSE 250 index peers. The company has a net cash position of around £72 million, which suggests that it is well placed to overcome potential economic challenges. And with its operating profit margin having increased by 60 basis points to 15.7% in the first half of the current financial year, it appears to have an improving competitive position.

Clearly, risks such as tight supply chains for certain materials and an uncertain near-term global economic outlook could weigh on the company’s financial performance and share price. But with solid fundamentals and strong growth prospects, the stock appears to offer a favourable risk/reward ratio on a long-term view.

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