There is a thin line between love and hate. But today, let’s feel the love. Here are five reasons why I love Unilever (LSE: ULVR) (NYSE: UL.US).
Its share price is falling
Unilever has posted steady share price growth ever since the lows of March 2009 to hit a high of £28.85 in May. Since then, it has since slumped to £24.95, a drop of nearly 14%. I’ve been watching this stock for some time waiting for a buying opportunity, and had almost given up hope. Suddenly, here it is.
Its valuation is almost bearable
As a rule, I hate buying stocks trading above 15 times earnings, but Unilever is a rare exception. It regularly trades at 20 times earnings, because investors are willing to pay a premium for this well-run global operation, which boasts a raft of renowned brands and ready access to fast-growing emerging markets. Fellow household goods giant Reckitt Benckiser is the same. Right now, Unilever trades at 18.3 times earnings: still expensive, but everything is relative.Â
Unilever is everywhere
Unilever is in your kitchen (Flora, Liptons, Knorr), your freezer (Ben & Jerry’s, Magnum, Wall’s), your utility room (Persil, Omo, Surf), your bathroom (Axe, Dove, Vaseline) and your hair (Sunsilk, Timotei, VO5). And not just in the UK, but in 190 countries around the world. It has 14 brands with sales of more than €1 billion. Two billion people use its products on any given day. The emerging middle class is opening up a vast new market. These products are virtually recession-proof, foolproof and future-proof. You just gotta love that.
It’s a strong stock in tough times
Unilever’s share price was hit by its recent Q3 results, which showed a slowdown in emerging markets. But underlying emerging markets sales growth was still 5.9%, compared to a 0.3% drop in developed markets. That’s good news, given that emerging markets account for 55% of Unilever’s business. Chief executive Paul Polman expects sales to continue growing in Q4, due to its “strong innovation pipeline”. In a competitive market, Unilever has brand power and global might, is steadily boosting margins, and throwing off lots of cash. It should give your portfolio a solid defensive base until the good times return.
The future is brighter
Earnings per share are set to fall by 4% this year, but grow 6% in 2014. While you wait, you can load up on its index-beating yield. Recent share price falls have knocked that up to 3.9%, against 3.5% for the FTSE 100 as a whole. Better still, it is covered a solid 1.7 times. I’ve complained about Unilever’s undernourished yield in the past, I’m not complaining now. That’s another reason to feel the love.