Why Growth Hunters Must Check Out Unilever plc, ARM Holdings plc & Taylor Wimpey plc!

Royston Wild discusses the earnings outlook of Unilever plc (LON: ULVR), ARM Holdings plc (LON: ARM) and Taylor Wimpey plc (LON: TW).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m running the rule over three FTSE 100 growth stars.

Construct colossal returns

I feel certain that housebuilding giants like Taylor Wimpey (LSE: TW) are some of the safest destinations for those seeking cast-iron earnings growth.

Make no mistake, the country’s chronic housing shortage is set to last for some time yet. Homes are simply not being built at the rate that’s desperately required, with the government’s ‘Help To Buy’ scheme — allied with generous lending conditions, falling unemployment and rising wages — propelling demand relentlessly higher.

Data released by the Office for National Statistics this week underlined the scale of Britain’s housing market imbalance. Property prices galloped ahead 8.6% year-on-year in January, the organisation noted, taking the average UK home price to £292,000.

Against this backcloth Taylor Wimpey is anticipated to enjoy earnings growth of 16% and 8% in 2016 and 2017, respectively. And subsequent P/E ratios of 10.9 times and 10.1 times make the homebuilder too good to pass up on, in my opinion.

Chip in

Galloping demand for smartphones and tablet PCs has underpinned sterling profits growth at ARM Holdings (LSE: ARM) for many years now.

But more recently, signs of market saturation for these devices has prompted many to question whether the tech play can keep earnings shooting skywards. I don’t share these concerns however — ARM Holdings sets the standard when it comes to microchip design, allowing it to defend and gain market share from its competitors.

Meanwhile, the firm’s position as the chipbuilder of choice has also seen its expansion into hot new sectors like servers, networking and the mysteriously-monikered ‘internet of things’ from the get-go.

The City expects ARM Holdings to therefore follow a projected 43% earnings bounce this year with a 13% advance in 2017. While these figures leave the firm dealing on high ‘paper’ earnings multiples, at 29.3 times and 25.8 times, respectively, I believe the prospect of prolonged earnings propulsion still makes the business a terrific pick at current prices.

Brand brilliance

Regardless of broad economic pressure on consumers’ wallets, household goods giant Unilever (LSE: ULVR) has still managed to grid out earnings growth year after year, thanks to the strength of its product portfolio.

Goods like Magnum ice cream, Lynx deodorant and Lipton tea carry formidable pricing power that enables the firm to steadily raise prices and keep revenues rising. Meanwhile, Unilever’s exposure to a wide range of consumer markets provides its earnings outlook with additional strength.

On top of this, the London business is also doubling-down on cost-slashing to provide the bottom line with a further boost — indeed, a combination of shrewd pricing and cost savings drove gross margins 80 basis points higher in 2015, to 42.2%.

Given these factors, the number crunchers expect Unilever to enjoy earnings rises of 7% in both 2015 and 2016. Subsequent P/E ratios of 21.5 times and 20 times may appear conventionally heady, but I believe — like ARM Holdings — that Unilever’s market-leading products more than merit such a premium.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

£20,000 in savings? Here’s how I’d aim to turn that into passive income of £903 a month

Our writer shares one approach to passive income investing, spotlighting a quality FTSE 100 stock he recently added to his…

Read more »

Investing Articles

Great dividend stocks! Here’s the forecast for Associated British Food shares to 2027

Associated British Foods' shares have dropped in value this year. Does this present a dip-buying opportunity for dividend investors to…

Read more »

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »