Many UK shares could be trading at bargain levels thanks to recent stock market and economic volatility. One stock I want to take a closer look at is PZ Cussons (LSE:PZC). Should I buy or avoid the shares for my holdings?
Essential consumer goods
As an introduction, PZ Cussons manufactures and distributes cleaning, hygiene, and toiletry products for consumers. Some of its best known brands include Imperial Leather, Carex, and Cussons Baby. I must admit I’m a user of many of its products in my household.
So what’s happening with PZ shares currently? Well, as I write, they’re trading for 194p. At this time last year, the stock was trading for 219p. This is an 11% drop over a 12-month period. Many UK shares have fallen as a direct result of increasing pressures, some of which I will explore in more detail shortly.
Challenges of note
The macroeconomic headwinds affecting many stocks, including PZ, include soaring inflation, the rising cost of raw materials, as well as the supply chain and energy crises. Combined, they have created a cost-of-living crisis here in the UK. The tragic events in Ukraine have also caused issues too.
For a business like PZ, rising costs, which could increase cost of production for its products, may eat away at profit margins, which underpin growth and shareholder returns.
In addition to this, supply chain constraints could see PZ unable to fulfil orders, and even stock shelves, which would in turn negatively affect sales and performance.
Lastly, the cost-of-living crisis may mean that some consumers may turn away from branded items that PZ sells. Instead, they may look towards cheaper alternatives, which could hurt its performance and returns too.
The positives and what I’m doing now
Away from the bearish aspects, there is lots to like about PZ Cussons, in my opinion. It’s current brand power, profile, and presence as a worldwide business, are key ingredients to its success now, and in the longer term. This is because the pandemic resulted in higher levels of hygiene and cleanliness consciousness throughout the world. For example, there probably isn’t a public space now that doesn’t have hand sanitiser at every entrance, exit, kiosk, or till. Overall, this could help boost performance and returns for a long time to come.
At present, PZ shares would boost my passive income stream through dividend payments. The current dividend yield stands at 3.5%. This is higher than the FTSE 250 average of 1.9%. I am conscious that dividends can be cancelled at any time, however.
Finally, I can see that PZ has a consistent track record of performance, which is encouraging. I am aware that past performance is not a guarantee of the future. However, looking back, it has recorded consistent levels of revenue and profit for the past four years.
To summarise, PZ Cusson shares could face some increased risk in the shorter term. Luckily for me, I invest for the long term, which means they look ideal for me and my holdings.