After making a disappointing start to 2014, Unilever (LSE: ULVR) (NYSE: UL.US) has enjoyed something of a purple patch in recent months. Indeed, its shares have now outperformed the FTSE 100 over the course of 2014, with the consumer-goods company being up 3%, while the wider index is down 2% over the same time period. However, Unilever could have much further to go and could make a positive contribution to your mortgage repayments. Here’s why.
Growth Potential
Clearly, Unilever has huge potential when it comes to the long run. That’s because it has a stable of highly valuable brands that enjoy a vast amount of customer loyalty across the globe, meaning that demand should remain buoyant for many years to come. However, Unilever also has the potential to grow in emerging markets, where overall wealth is expanding at a fast pace and a rapidly growing middle class is beginning to demand products such as luxury personal care items and premium foods, in which Unilever specialises.
This trend looks set to continue and, more importantly, Unilever appears to be well placed to benefit from it. In recent years the company has spent significant sums of time and money in ensuring that its products are widely available and are prominently displayed in outlets. It also has a substantial marketing budget that, while hurting the bottom line in the short run, should pay dividends in the longer term as Unilever develops the kind of customer loyalty that it has managed to achieve in developed economies.
Valuation
Due to the quality of its brand portfolio and its longer-term potential, Unilever tends to trade at a significant premium to the wider market. Indeed, while the FTSE 100 currently has a price to earnings (P/E) ratio of 13.4, Unilever’s P/E is much higher at 19.8. This may seem overly expensive for any company, but when you consider that Unilever’s P/E has been well over 20 in the recent past, the current share price may in actual fact represent good relative value.
Looking Ahead
Clearly, investors are also concerned with Unilever’s near-term prospects, too. While this year looks set to be a tough one, with a Chinese economic slowdown hitting numbers in the first part of the year, next year is set to be a whole lot better. Indeed, Unilever is forecast to grow its bottom line by an impressive 9% next year and, with a relatively low P/E (for Unilever) and huge long term potential, it could have a bright future. As such, Unilever could make a positive contribution to your mortgage repayments.