Unilever (LSE: ULVR) (NYSE: UL.US) proved its defensive characteristics during the slump, and over the past ten years it’s gained 150% to reach 1,460p while the crisis-hit FTSE 100 has managed a puny 38%.
But once a recession is over and a bit of confidence starts returning to stockmarkets, those outperforming defensives can start to fall back a bit as money goes in search of higher-risk gains once again.
Falling back?
And that’s what happened in 2013, as Unilever shares fell behind the FTSE’s 14% for a gain of just 5%. Unilever ended 2013 on a P/E of 19.4, which is above the FTSE’s long-term average of around 14 but still wouldn’t be seen as expensive in many investors’ eyes, especially as there are market-beating dividends of around 3.5% to be had.
But sentiment has been changing again this year, with problems like the woes at Tesco weighing heavily on fears that we might not actually be back in a new bullish phase just yet.
Once again, while the bears prevail the defensive stocks do well — since the start of the year the FTSE is down 5%, but Unilever shares have gained 4%. And the way the mood is going, I can see Unilever hanging on to the advantage and ending the year still ahead.
But what about valuation?
No growth this year
Analysts are not expecting any growth in earnings per share (EPS) this year, and that puts the shares on a slightly higher forward P/E of 19.6. But the dividend is expected to be raised again and should be comfortably covered by earnings, so I really don’t see that as unduly expensive at all — and with a forecast 9% EPS rise for 2015 dropping the P/E to 18, I can even see Unilever shares as decent value.
What does the company itself say?
Third-quarter figures released on 23 October revealed a 3.2% rise in underlying sales for the nine months of the year so far, with emerging markets up 6.2%. That was described by chief executive Paul Polman as “a competitive performance“, and it was pretty decent against this year’s general retail conditions.
A perfect company?
Mr Polman also said that “We are confident that we will achieve another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow“, and I really can’t see what more investors could want from a company like Unilever.
I can’t claim Unilever shares will beat the FTSE every year, but over the long term I reckon they will more often than not.