Trading Strategies: a FTSE 100 to own after 23% drop

Oil and gas prices have surged 53% and 71% higher, respectively, since the war in Iran commenced at the end of February. This is highly likely to prompt a period of elevated inflation that may lead to a tighter monetary policy than many investors previously anticipated. Ultimately, this could mean that the global economy’s growth outlook deteriorates over the coming months.

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This situation could equate to a highly challenging period for consumers, as well as the firms that rely on them. Higher inflation means the cost of living ‘crisis’ may persist, with many individuals likely to find that their disposable income is put under pressure. Indeed, if interest rates rise and wage growth is subsequently suppressed, consumers may find that their spending power deteriorates markedly in the short run.

This is clearly bad news for consumer-focused companies. Not only could higher inflation lead to higher costs thereby squeezing profit margins, but reduced spending power may mean that they struggle to implement price rises as customers switch to cheaper own-label brands or reduce consumption. This may ultimately lead to lower sales volumes, lower profits and lower share prices among FTSE 350 consumer stocks.

A long-term view

Indeed, recent share price falls and a challenging near-term outlook may dissuade some investors from purchasing consumer stocks. After all, there is no guarantee that their prices have bottomed out, given the ongoing presence of an uncertain near-term geopolitical and economic outlook.

In many cases, though, their recent share price falls mean that a large proportion of the risk from higher inflation, rising interest rates and a potential renewed cost of living ‘crisis’ has already been priced in. This margin of safety should help support the share prices of consumer stocks in the short run, while providing a potential catalyst for capital growth as an upward rerating becomes increasingly likely over the long run.

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In fact, investors who can take a long-term view may be able to use recent share price falls among consumer stocks as an opportunity to buy high-quality firms at temporarily low prices. The economy’s long-term track record, after all, shows that it has always recovered from eras of elevated energy prices, high inflation and tighter monetary policy, with global GDP growth ultimately returning to its long-term average following periods of difficulty.

Solid fundamentals

Of course, some consumer-focused firms are better placed than others to both overcome a period of difficult trading conditions and generate higher profits in any subsequent economic recovery. Companies with sound balance sheets, for example, may be better equipped to not only survive, given that any fall in operating profits is unlikely to make their net interest costs unaffordable, but also reinvest and make acquisitions to bolster their long-term growth potential.

Similarly, firms with strong competitive positions, such as through enjoying significant customer loyalty, having lower costs than their peers, or a large share of the market, may fare relatively well over the short and long run. For example, they may be able to more easily raise prices, and maintain profit margins, in response to higher costs because of substantial pricing power.

Investment potential

Even focusing on such firms, though, is unlikely to shield investors from what is likely to be a period of continued high volatility. Although the share prices of consumer stocks have already fallen significantly so that they offer good value for money in some cases, they could yet experience further declines. And with the conflict in Iran being highly fluid, and while the response of central banks to a potential spike in inflation is difficult to accurately forecast, investors must accept there is the potential for paper losses on any new purchases.

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In the long run, though, several FTSE 350 consumer stocks could offer investment potential. Their wide margins of safety, solid fundamentals and the prospect of increasingly upbeat operating conditions over the coming years mean they appear to have favourable risk/reward opportunities for long-term investors.

Share price decline

Source: ShareScope, 31 March 2026. Past performance is not a guide to future performance.

For example, global consumer goods company Unilever (LSE:ULVR)’s share price has fallen by 23% since the end of February. As a result, shares in the owner of popular brands including Dove, Persil and Marmite have recently traded at their lowest level since April 2024.

In the short run, it would be unsurprising if they display elevated volatility due to the fluid geopolitical situation in the Middle East and the uncertain resulting economic outlook that could negatively impact consumer spending. However, the company’s financial position suggests it is well equipped to overcome near-term challenges and deliver growth in the long run. For example, its net finance costs were covered 18 times by operating profits in its latest financial year.

Competitive advantage

In addition, the company enjoys a large amount of customer loyalty towards its brands. This provides a high degree of pricing power that may allow it to raise prices and maintain profit margins without experiencing a substantial reduction in sales volumes.

Furthermore, the company reported a 60-basis point rise in its operating profit margin in the latest financial year. It now stands at 20%, which suggests its competitive position is improving, with continued cost control following the cumulative €670 million (£585 million) of savings that were delivered by the end of the 2025 financial year, plus prospective price rises having the potential to further enhance its competitive advantage.

Separately, the company is undergoing a period of significant change. In December, it completed the demerger of its ice cream business following several other disposals during the year. When combined with multiple acquisitions made over recent months, this has the potential to refocus its operations towards faster-growing areas.

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It would be unsurprising if further changes to the firm’s portfolio of brands are enacted over the near term. Notably, it is currently in advanced discussions to potentially sell elements of its food business. Although any such changes have the potential to cause a degree of disruption in the short run, they could lead to a greater focus on higher-quality brands with superior long-term growth potential that act as a greater catalyst on the company’s bottom line.

Value for money

In the current year, Unilever expects to deliver underlying sales growth of 4-6%, with underlying volumes set to rise by at least 2%. When combined with a modest anticipated increase to operating profit margins, as well as the effect of a €1.5 billion share buyback programme, the company is forecast to post a 4% rise in earnings per share (EPS) this year. This is due to be followed by a 7% rise in EPS next year.

Given that the company’s shares trade on an earnings multiple of 15, many investors may feel it remains relatively overvalued even after its share price fall. After all, an annual mid-to-high single digit percentage rise in EPS is unlikely to be ahead of that of the wider FTSE 100 index.

However, Unilever traded on a much higher price/earnings (PE) ratio of 20.4 shortly before its recent share price decline. It also has a history of trading on a much higher earnings multiple than its current level, with it reaching 23.6 as recently as 2024. This suggests there is scope for a material upward rerating over the long run that boosts its share price performance.

Furthermore, the company’s sound balance sheet and improving competitive position suggest it is worthy of a premium valuation. Although its share price may yet display further elevated volatility in the short run, the company’s strategy, range of brands and capacity to overcome near-term economic challenges to recover over the long run suggest it represents a favourable risk/reward opportunity.

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