The FTSE 100 index is up 10% this year and closing in on its pre-pandemic crash levels. Despite this respectable performance, there are three underperforming companies that jump out at me. Unilever (LSE:ULVR), Ocado Group (LSE:OCDO) and London Stock Exchange Group (LSE:LSEG) are down 14%, 19% and 28% year-to-date, respectively. Will 2022 see a change in their fortunes?
Unilever
As many as 2.5bn people use Unilever’s products daily and I consider it a high-quality business. Yet the second largest company in the FTSE 100 index by market capitalisation has had a challenging 2021. Rising inflation has hit profit margins. Meanwhile, global lockdowns, supply chain disruptions and staff shortages have contributed to a volatile business environment. This has triggered a decline in the share price and could persist in 2022.
Nevertheless, I’ve predicted that Unilever has the pricing power to pass input cost increases to its customers. Additionally, the €4.5bn sale of its tea business to CVC Capital Partners could be shrewd. Household names like PG tips and Lipton have been a drag on overall growth. Unilever is instead focusing on emerging markets such as India and Indonesia where it maintains ownership of its tea division. Its portfolio is evolving into higher-growth spaces including nutrition, beauty and personal care products. The stock also boasts an attractive yield, approaching 4%.
Ocado Group
Ocado Group is probably best known for e-commerce grocery website Ocado Retail. It’s the fastest-growing grocer in the UK, but the Ocado Smart Platform (OSP) excites me most. The company is focusing on creating ‘warehouses of the future’ with robotic solutions.
Despite an underwhelming 2021, Ocado is still the best performing FTSE 100 constituent over the past five years. Following an exceptional 2020 as the pandemic created a boom in online grocery shopping, growth has slowed this year. And similarly to Unilever, it’s grappling with a volatile pandemic-created business environment.
Short term, the share price may rise if lockdown restrictions return to the UK. However, I see this as a long-term play. Through the OSP, global partnerships and investments in vertical farming, Ocado could revolutionise the way we grow and buy food.
London Stock Exchange Group
London Stock Exchange Group (LSEG) is a leading global financial markets infrastructure and data company. It owns the London Stock Exchange, the dominant exchange in the UK. Another subsidiary of LSEG is FTSE Russell that produces and maintains indices such as the FTSE 100.
In January, LSEG completed the acquisition of data and analytics company Refinitiv for $27bn. I believe the acquisition has the potential to strengthen a business that already boasts a strong economic moat. Though this has not been without its challenges.
Fears of the complexity and high costs of the integration surfaced in March, despite its potential to transform the business. Citibank and Credit Suisse expressed concerns about the high costs of upgrading Refinitiv’s tech platform. These costs could linger into 2022, possibly dampening the overall growth outlook of LSEG. Following disappointing guidance of mid-single-digit growth for 2021, the share price plummeted close to 14% in a single day. Yet after a disappointing year, I’m optimistic about the business (and its share price) in 2022 and beyond.
Change in fortunes?
With Black Friday fast approaching, it’s fitting that I see good value in these three FTSE 100 constituents. After a challenging 2021 for these businesses, I’d be happy to add all three to my portfolio today.
Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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