The FTSE 100 may have delivered impressive returns in recent months, but there are still a number of companies that have experienced disappointing performances. Buying them while they trade on lower valuations could prove to be a sound long-term strategy, which leads to higher returns.
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Here are two FTSE 100 shares that are currently experiencing challenging trading conditions, but which could deliver improving performances in the coming years.
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ITV
As a cyclical stock, it is perhaps unsurprising that ITV (LSE: ITV) is delivering disappointing levels of profit growth at the present time. With consumer confidence and business confidence being low, demand for its television advertising is coming under pressure. It may also be losing out to some degree to the increasing appeal of online advertising, which is generally simpler and easier for companies to engage in.
In response, ITV is investing in improving its digital growth prospects. It is also seeking to gain ground within the lucrative streaming services segment through its joint venture with the BBC. Meanwhile, cost reductions and an increasing international focus could de-risk the business and improve its long-term growth prospects.
With the stock currently trading on a price-to-earnings (P/E) ratio of just 11.6, now could be the right time to buy a slice of it. Although in the near term it may not generate improving financial performance, it appears to have a sound strategy that could catalyse its profitability in the coming years. This may lead to a share price recovery.
Unilever
Also experiencing challenging operating conditions is FTSE 100 consumer goods business Unilever (LSE: ULVR). It recently released a trading update where it highlighted the difficult market environment it has been faced with in key geographies such as China. It therefore expects sales to disappoint in the short run, although it is on track to deliver rising profitability.
This caused a decline in Unilever’s share price. For example, it has declined by around 20% in the past four months. While further falls in its market valuation cannot be ruled out, the company has a strong presence across a range of emerging economies. With wage growth set to rise in the medium term, demand for its products could increase. This may catalyse its sales performance and lead to a return to share price growth.
Certainly, Unilever is not a cheap stock compared to the wider FTSE 100 – even after its recent decline. However, its P/E ratio of 18.2 is significantly lower than its recent rating, and could mean that there is scope for improving capital returns as the company benefits from an uptick in sales.
