5 stocks to watch in July

Food inflation may have eased but that’s likely to bring minimal comfort to Ocado, the grocery sector’s self-styled Microsoft. We’ll find out more this month when it posts half-year results. Keep an eye out too for news from BP and Shell, Unilever and Rightmove which has a new US neighbour about to move onto its turf.

Here is a round-up of some of the stocks to keep an eye on in July as these companies issue their latest results or trading updates.

This is not a recommendation to buy or sell these investments and is purely insight into some of the companies that will be announcing results this month.

Ocado

Food inflation may be over the worst, but that will presumably bring minimal joy to Ocado. The online supermarket has, after all, always insisted its business isn’t really about groceries at all - it’s about technology.

Fair to assume then that there would definitely not have been smiling faces as Ocado Group revealed that Canadian retailer Sobeys had ‘paused’ a deal to open another robotic warehouse and would no longer be exclusively using Ocado’s services.

Ocado Group, which also owns half of the UK’s online-only supermarket Ocado Retail, has staked its future on selling its software and robots to traditional supermarket chains around the world to help them boost their ecommerce operations.

In 2018, it signed a deal with Sobeys, Canada’s second-largest food retailer, to launch an online grocery business in the country using Ocado’s technology. However, Ocado has now said “the Vancouver [depot] will be under regular review” and the two businesses have agreed to end exclusivity, allowing them to work with rivals on similar projects.

Reading between the lines at Empire, which owns Sobeys, the Ocado deal clearly isn’t cutting the mustard. In a statement, Empire explained that it was cutting short its agreement because on current volumes Ocado’s tech is too expensive to make the deal work effectively.

Not surprisingly, there were no smiles from investors either. Ocado’s shares, which, as we know have already fallen drastically from their pandemic record high, sank lower on the news.

It has been a tough few months for Ocado. US giant Kroger announced it is closing three sites powered by Ocado. Kroger is Ocado’s single biggest customer, having signed a deal back in 2018 to build around 20 large fulfilment centres for it in the US.

There is also the spat with Marks & Spencer. Ocado has threatened to sue M&S over the disagreement, or rather the fact that M&S is “positively dissatisfied” with Ocado Retail's performance and will not automatically pay a final instalment of £191m to Ocado.

This is a distinctive souring of what had been the start of a positive partnership, with M&S products defying sceptics by proving to be more popular than those of Waitrose, Ocado’s previous partner. But that initial surge in sales has struggled to keep up the pace it enjoyed when online sales boomed during the pandemic.

Amid all this, shareholders have rebelled against a new pay scheme that could see chief executive Tim Steiner handed a bonus share award of up to £15m. Steiner was paid almost £2m last year, while Ocado Group reported an annual pre-tax loss of £394m. 

He was paid £59m in 2019, despite Ocado suffering a £215m loss, in one of the largest annual pay outs for a FTSE 100 chief executive. Ocado was demoted from the FTSE 100 index at the latest June reshuffle.

There has been no change in Ocado’s guidance for the current financial year since the Sobeys news.

Back in February it reduced its annual loss and said it would take another five or six years to turn a profit at the pre-tax level. The bulk of that profit has always been reliant on the success of Ocado’s Technology Solutions division.

Finance director Stephen Daintith is insistent that in the next two to three years the Technology Solutions division will generate enough cash to fund the group's future growth and deliver positive cashflow.

Ocado made a pre-tax loss of £403.2m in the year to 3 December 2023. That came in ahead of analysts' average forecast loss of £410m and was a definite improvement on the £500.8m loss delivered back in 2021/22.

Ocado half-year results are due out on 16 July.

More on Ocado

Unilever

Unilever started the year with bigger than expected sales as the consumer goods giant reported its first earnings since announcing the sale of its ice cream division. Underlying sales rose 4.4% in the first quarter of the year, beating analysts’ expectations of 3%, while turnover grew 1.4% to €15bn.

The ice cream business, which accounts for 16% of Unilever’s global sales, is to be spun-off, most probably by the end of 2025. That’s according to Unilever’s new chief executive Hein Schumacher, who said it’s likely to be separately listed on the stock market, although he’s open to other options.

Going too are 7,500 jobs at the consumer goods group, which employs around 128,000 people. That’s part of a three-year plan to cut costs by €800m and get the company back on track. Unilever has been falling behind its competitors, like Procter & Gamble. Investors would undoubtedly welcome a turnaround too.

Further proof that the ice cream business, which includes brands such as Magnum and Ben & Jerry’s, was the best target for disposal came when its first quarter sales lagged behind other divisions, with first quarter sales volumes dropping 0.9%. The maker of Dove soap and Hellmann’s mayonnaise said that its “power brands” had performed well though over the same period.

Personal care products are also on the unloved list, whereas its high-end cosmetics brands are doing well, despite the cost of living crisis. Vasiliki Petrou, chief executive of Unilever Prestige, said “beauty is recession-proof”.

That’s good news for the division which has 10 high-end brands including skincare products Tatcha and Dermalogica, Hourglass make-up and Living Proof haircare. They collectively make up 30% of its products, while more than half caters to the mass market and the rest are classed as value goods.

Unilever Prestige, which Petrou has run since its launch 10 years, has delivered 13 consecutive quarters of double-digit sales growth up to the first quarter of this year. Turnover for 2023 was €1.4bn compared with €700m in 2020. Unilever’s sales overall grew 4.4% in the first three months of the year and 7% in 2023, while turnover fell 0.8% to €59.6bn in 2023 compared with the year before.

Unilever is due to post its half-year results on 25 July.

More on Unilever

Rightmove

Rightmove has long been the ‘go to’ site for buyers and sellers and nosey neighbours. Its singularly dominant position has also made it the ‘must have’ sales tool for estate agents and housebuilders. Few, if any, aren’t on Rightmove. A fact that has, in turn, given Rightmove significant pricing power when it comes to subscriptions.

But is Rightmove’s place in the market changing? In an update on trading for the four months to the end of April, when it also confirmed its full-year outlook for revenue and profits, Rightmove lowered its estimate of its average growth in ad revenue for the year, from over £100 to between £75 and £85. Could that be because it is attracting fewer full service estate agents and more lettings-only agents, who have a lower average revenue per advertiser (ARPA)?

Its update only hinted at that possibility. On the plus-side, it showed clearly that housing market activity has picked up, with agreed sales in the first four months of 2024 up 17% on the same period last year and prices resuming their upward trend.

It is evident that higher mortgage rates are impacting first-time buyers, but other parts of the market are moving ahead and with buyers and sellers “increasingly looking to transact”, Rightmove said it sees total UK house sales reaching 1.1 million this year.

Worth noting too though that, potentially as a flip-side to the impact on first time buyers, the rental market is also still busy. Rightmove said average rents are up 7.6% on the same period last year and it estimates that there is a shortfall of some 50,000 properties compared with 2019.

Against this backdrop, consumers are spending over 80% of their time on Rightmove when searching on property portals and are increasingly engaging with the site resulting in a 40% uplift in email leads through the Rightmove app.

Pre-tax profits at the last count came in 7.7% up at £259.8 million for the year. Underlying operating profits also saw a rise of 8% to £264.6 million from £245.4 million, while earnings per share improved by 5% to 24.5p from 23.4p.

However, despite the overall positive financial performance, the company saw a 1.2% decrease in total membership, dropping to 18,785 from 19,014. It said the number of estate agents using the site has increased by around 250 due to “strong agent retention and particular strength in the lettings market” - again suggesting a shift towards more lettings business.  

The biggest question at the moment though is perhaps whether or not Rightmove, which has for so long been the dominant player, can withstand increased competition.

There is no doubt that with US firm CoStar looking to compete in the UK, Rightmove’s ability to retain its customers is going to be tested. And the membership metrics will be one of the best ways of monitoring this.

The New York-listed property group has snapped-up one-time would-be Rightmove rival, AIM-listed OnTheMarket. CoStar has described the acquisition as an "attractive strategic entry point" to the UK residential property market.

And it could make a big splash. CoStar is about seven times the size of Rightmove and appears to be prepared to spend significantly to try and take part of the UK market. While Rightmove’s prominence and dominance in the UK property position might initially give it an advantage, it’s going to be sorely tested. Rightmove has never faced a competitive threat like the one that’s coming from CoStar.

Rightmove half-year results are due out on 26 July.

More on Rightmove

BP

A key holding in so many investors’ portfolios, the oil giant BP’s promise to focus on core business and return as much cash as they can to shareholders, can have only be good news for shareholders.

“We’re return-driven,” said BP chief executive Murray Auchincloss, who stepped into the role in January after Bernard Looney was fired for serious misconduct. “We’re really, really driven by returns,” he emphasised in BP’s first-quarter earnings call.

It seems that after years of trying to woo ESG investors it is back to the knitting for BP. Now it’s all about consistent returns - and most importantly for investors attractive, or even enhanced, shareholder returns.

Delivering the oil giant’s second-biggest profit in a decade back in February, newly installed Auchincloss, who served as chief financial officer under his predecessor, made quite an entry. He also announced an expanded share buyback scheme.

BP pledged to buy back $1.75bn of shares in the first quarter and made a further commitment to return at least 80% of surplus cash flow to shareholders through future buybacks, up from a previous target of 60%. It intends to repurchase at least $14bn in stock over the course of 2024 and 2025, it has said.

This return to form will no doubt please investors weary after years of splashy headline-grabbing deals and equally headline-grabbing misdemeanours of the sort that led to the sacking of Mr Looney and a tightening of workplace rules.

Although keeping the BP name out of the headlines will be difficult, as was proven when Lord John Browne, the former chief executive of BP, called for an end to new drilling licences in the North Sea, in an implicit endorsement of the Labour party’s position on fossil fuels. 

But BP knows what it needs to do and how to do it. It discovered the North Sea’s first gas field in 1965 and struck oil in 1970, transforming the company’s fortunes. BP went on to sell the field in 2003 to Apache for $812m, as they and other oil giants moved on to new territory.  

In the first quarter, BP disappointed, coming in slightly below expectations with a $2.7bn profit, against a consensus forecast of $2.9bn. The company said it had paid a higher tax rate, and that while oil and gas trading were strong, prices had fallen substantially from a year earlier. Net debt increased to $24bn from $20.9bn in the last quarter.

Auchincloss though promised to trim BP’s costs by $2bn by the end of 2026 and said savings would be made “in all parts of our business” and would come from focusing BP’s portfolio of assets, taking out waste in the supply chain, digital transformation and relying more on “hubs” for its IT and accounting services.

BP Q2 results and latest dividend announcement is due on 30 July.

More on BP

Shell

Oil giant Shell recently fought off competition from Saudi Aramco to buy liquefied natural gas trader Pavilion Energy from Singaporean investment fund Temasek, in a sure sign that Shell is betting that demand for liquified natural gas (LNG) will grow even more in the coming years.

The thinking is that China and developing economies will rely on it as a transition fuel because it is cleaner, comparatively at least, than other fossil fuels.

While natural gas is cleaner than other fossil fuels, it still releases substantial amounts of carbon dioxide when burnt. Natural gas is also mostly composed of methane, which generates more warming than carbon dioxide but is shorter-lived.

Shell currently sells almost 70 million tonnes of LNG a year and has ambitions to grow the amount of LNG it purchases by between 20% and 30% by 2030, compared with 2022 levels. Shell’s LNG business has profited hugely since the start of the war in Ukraine, with Europe more reliant on it after Russia drastically cut the amount of gas it sends via pipeline to Europe.

The cost of the Pavilion deal has not been disclosed, but the company was valued at $3.63bn by Temasek at the end of March 2023 and reported a post-tax profit of $438m in the 12 months leading up to that.

Like BP, Shell is returning its focus to its core business with a promise to return as much cash as they can to shareholders. Chief executive Wael Sawan said the company’s “pragmatic approach” would see “enhanced shareholder returns”, “attractive shareholder returns” and would deliver “even more returns”.

In the first quarter, Shell came in almost 20% above profit expectations at $7.7bn, as its huge LNG and trading business delivered $1bn more profit than many analysts expected.

Shell is due to give its Q2 update on 5 July.

More on Shell

Five-year share price performance table

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Past performance is not a reliable indicator of future returns. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.