Terry Smith, who manages Fundsmith Equity, is one the best fund managers in the UK. So, it is worth keeping an eye on his purchases and sales.
Recently, it has come to light that Smith has completely sold his entire holding in FTSE 100 consumer goods giant Reckitt Benckiser (LSE: RB). This is a stock he has held for a long time. Given Smith’s track record, should I sell RB shares too?
Terry Smith has dumped Reckitt Benckiser
Looking at the investment case for Reckitt Benckiser, there are a lot of things I like about the stock.
For a start, recent results have been good. While many FTSE 100 companies have struggled this year, Reckitt has enjoyed strong sales growth on the back of higher demand for its hygiene products (Dettol, Lysol, etc.). Third-quarter results, for example, revealed like-for-like revenue growth of 13.3% with e-commerce sales up 45%. The company advised that it now expects low-double-digit revenue growth for the year.
Secondly, I expect Reckitt’s hygiene sales to remain elevated for at least a few years. Even with a vaccine, I think hygiene is going to remain a key focus globally. Throughout Covid-19, people have developed new hygiene habits. These are likely to stick around, in my view. It’s worth pointing out that Reckitt has recently signed key partnerships with organisations such as Hilton Hotels and Delta Air Lines, to help them protect their customers.
Insiders are buying shares
Third, I like the fact that top-level insiders have bought a significant amount of stock recently. In November, the CEO and the Chairman spent around £750k on Reckitt Benckiser stock. Meanwhile, earlier in the year, top-level insiders spent several million pounds on stock. This buying activity suggests that these insiders are confident about the future. And who knows more about a company, and its prospects than its leaders?
Superb long-term track record
Finally, I like the fact that Reckitt Benckiser is relatively recession-proof. Even when economic conditions are terrible, people buy Nurofen painkillers, Durex condoms, Strepsils lozenges, and Cillit Bang cleaning spray regularly. As a result of this defensive nature, RB has been one of the best-performing stocks in the FTSE 100 since the index was launched in 1984.
Given the financial environment we’re in right now (Covid-19, Brexit, etc.) I think RB could play a valuable role in my portfolio as a defensive stock.
I’m a buyer of Reckitt Benckiser shares
Of course, like any stock, Reckitt Benckiser isn’t perfect. One issue that concerns me is that it is currently experiencing some problems with its infant nutrition division. Here, sales growth is poor.
However overall, I see no reason to follow Terry Smith and sell the FTSE 100 stock. With the shares currently trading on a P/E ratio of less than 20 and offering a dividend yield of nearly 3%, I’m more than happy to keep them in my portfolio for now. Recently, I’ve been adding more.