The packaged food and consumer goods giant was seen as a stock for all seasons. As a purveyor of soap, shampoo, bleach, sprays, and ice cream, sales rose when consumers were feeling flush. Yet revenues held up in the bad times, too, as people cut back on luxuries rather than Unilever’s low-cost everyday essentials.

I’m hunting for FTSE 100 stocks

Fundamentally, Unilever hasn’t changed. It still boasts a raft of huge global brands including Axe, Ben & Jerry’s, Dove, Lifebuoy, Hellmann’s, Magnum, Persil, Sunsilk, Vaseline and Wall’s. Customer numbers are soaring as emerging markets play catch up with the West.

What has changed is that management has lost its way. Critics have accused the board of pursuing a ‘woke’ agenda while failing to pay attention to the bottom line. Unilever also missed an open goal in the pandemic, by failing to boost hygiene and packaged food sales.

Its big shareholders are unhappy. Activist hedge fund investor Nelson Peltz acquired a stake in the wake of Unilever’s failed £50bn bid for GlaxoSmithKline’s consumer-health business, hoping to force change. He’s now on the board.

Peltz isn’t the only investor who thinks the business is in need of a shake-up. The Unilever share price certainly needs a fresh injection of life. It’s up just 1.6% in the past 12 months, and down 14% over three years.

It is struggling to make headway despite reporting an 8.1% increase in first-half underlying sales in July, as strong pricing offset input cost inflation. All four divisions delivered, and management expects underlying sales growth for 2022 to beat previous guidance of 4.5% to 6.5%.

Unilever appears to have pricing power, which has enabled it to hold full-year underlying operating margins within its guided range of 16% to 17%.

I’m a private investor, not an activist investor. I accept that Unilever needs an overhaul, but I still think the underlying business is strong. Personally, I would rather buy before it is on the mend, to take advantage of today’s highly tempting entry point.

I’ll buy Unilever this month

For years, Unilever has been trading at around 24 times earnings and yielding around 2.5%. Today, its valuation has dropped to 17.6 times earnings while its dividend yield is a halfway handy 4.4%, covered 1.5 times by earning.

Yes, the “medium-term macroeconomic and cost inflation outlooks are uncertain and volatile”, to quote Unilever itself, but that is partly reflected in today’s price.

I am currently hunting for FTSE 100 stocks at bargain prices, with the aim of holding them for at least 10 to 15 years. Having such a long perspective means I don’t have to worry about a company’s short-term problems.

So far I’ve bought FTSE 100 stocks Persimmon and I’m gearing up to buy Rolls-Royce. Once I get the cash, I’ll buy Unilever, too. Certainly before the month is out.

A new era of austerity?

Thomas Pugh at City group RSM said the new prime minister’s pledge for fiscal responsibility suggests the country could be facing a fresh wave of austerity.

The reversal of Liz Truss’s catastrophic fiscal policy could result in companies and individuals further reducing their economic activity and may induce a deeper recession than expected. Combine this with a cost-of-living crisis, and many companies may struggle.

There are counter arguments to this. Fiscal responsibility should bring down inflation and there’ll be less need to continually raise interest rates — higher rates mean higher mortgage repayments.

While my portfolio contains stocks like Lloyds, which is unlikely to perform well in a recession, I’m also looking at defensive stocks to hedge my position.

Defensive pick 1

Unilever (LSE:ULVR) is among my top picks and I’ve recently added it to my portfolio. The fast-moving consumer goods giant sells in 190 countries and claims that 3.4bn people use its products every day. Unilever has defensive qualities because of the strength of the brands it owns, such as Hellmann’s, Marmite, Heinz, Persil, and Lifebuoy.

When times are tough, customers still tend to buy branded goods. And this is why Unilever is likely to outperform the market in downturns. This has already been demonstrated in 2022, with the firm lifting prices and passing costs on to customers. In its H1 results, Unilever said it hiked its prices by 9.8% versus the same period in 2021, only resulting in a small fall in sales volumes.

Unilever also earns most of its income overseas and, with a weak pound, this should be a positive. Some 58% of its income comes from emerging markets, while approximately 17% of its revenues are derived from the US.

A deep recession is never good for spending, but Unilever still looks a strong pick for me. I already own shares in Unilever, but I’m looking to buy more.

Defensive pick 2

Diageo (LSE:DGE) is another company with similar characteristics. The firm has defensive qualities, selling brands such as Johnnie Walker, Guinness, Baileys, and Smirnoff. As noted, well-known brands tend to do well, even when pockets get squeezed. 

Moreover, a large proportion of its sales are made in the US, and it’s growing considerably in developing economies. More than a third of the firm’s sales come from North America. The figure, $6bn, is around double the company’s earnings in Europe.

I don’t have a position in Diageo, but with some analysts predicting a deeper recession, this stock could help me manage risk. As such, it’s a stock that I’m intending to buy.

It’s not particularly cheap, with a price-to-earnings ratio of 23. But that reflects growth prospects in developing markets, as well as the current demand for defensive stocks.

But it’s kept plodding on, decade after decade, generating cash and rewarding its shareholders. It’s possibly the best FTSE 100 share I’ve never bought.

The share price has been flat over the past 12 months, and it’s down 8% in five years.

Progressive dividend

But despite a minor dip in 2019 due to Covid, the Unilever dividend has kept on creeping upwards. Right now, we’re looking at a forecast 2022 yield of 3.7%. That’s not massive. But it’s high by Unilever standards. And I’d much rather bag a long-term progressive dividend than a one-off sky-high one.

I’m not the only one who thinks the Unilever share price suggests a buy right now. It appears the company itself does too, considering it’s engaged in a big share buyback.

Turnover

Unilever’s third-quarter update reinforces what I see as long-term dependability. The company reported underlying sales growth of 10.6% in the period.

In total, turnover grew by 17.8% compared to the same quarter of 2021. And over the nine months, we see a 16.1% increase. We need to see that in terms of inflation, mind. It seems price growth rose to 12.5% in the quarter, while volumes dropped 1.6%.

I’d also like to see comparisons to 2019, the year before Covid-19 sent so much of our retail shopping into disarray. I’ll dig out the figures to compare — but I think it’s worth waiting for final results, to see the full impact of 2022 inflation.

Uncertainty

I do see Unilever as a long-term buy, but I think this all illustrates the short-term downside risk that investors face. We’re really only just into a hard inflationary year. And the impact that will have on consumer spending is still very uncertain.

As a dividend investor, I’ll be looking mostly at full-year cash flow. But right now, Unilever’s liquidity situation looks pretty good. The company announced a new €750m share buyback tranche in September, which should complete by December. In total, the board plans to return up to €3bn in buybacks by the end of the year.

The third quarter dividend is maintained too, at 42.68 euro cents per share (37p at current exchange rates). That’s bang on the dividend paid for the same period last year.

Verdict

To sum up, I think in times of tough economic conditions, it makes sense to invest in market and brand leaders. With so many of its consumer products, that’s exactly what Unilever is. They usually tend to hold up better against inflation and recession. But even the best should expect pain next year, I think.

So yes, I do think Unilever is a good defensive stock to buy for 2023 and beyond. Will I finally buy now? Probably not. That’s just because, once again during hard times, I see other FTSE 100 shares that I rate as more undervalued.

Unilever

The consumer goods company Unilever (LSE: ULVR) is the business behind such well-known names as Marmite and Dove. Its focus on products that are used regularly by billions of consumers means it benefits from resilient demand. Owning premium brands gives it pricing power, allowing the firm to make juicy profits.

That has come in handy lately, as soaring inflation has pushed up the cost of making and selling its products. Unilever’s pricing power means it has been able to pass higher costs onto consumers without losing lots of sales volume.

I see inflation as an ongoing risk to profitability, but I like the firm’s business model and its long-term prospects.

Direct Line

Whatever is happening to the economy, people will still need or want to insure their homes and vehicles. That means that demand for general insurance services should be robust.

I reckon one firm that can benefit from that is Direct Line (LSE: DLG). The company’s shares have fallen sharply, though. They now stand 30% below where they were a year ago.

Why is that? Partly I think it reflects investor concerns that rising vehicle costs could make claims settlement more expensive, hurting profits. The insurer’s first-half results also showed a decline of 9% in the number of policies in force compared to the same period last year. That business slump is obviously not what a lot of investors want to hear.

But I think the fall in the Direct Line share price offers a buying opportunity for my portfolio. Indeed I bought back into the insurer over the past couple of months. I see long-term demand in its market and reckon Direct Line’s strong brand can help it capitalise on that. With an 11.5% dividend yield, I am hopeful that Direct Line can provide me with some welcome passive income streams even during a recession.

British American Tobacco

The addictive nature of smoking means that many people keep doing it even when money gets tight. That makes tobacco a classic example of what is known as a defensive stock.

This might explain why investors have been buying into British American Tobacco (LSE: BATS). Over the past year, its performance has been the mirror image of Direct Line, with the share price increasing by 30%.

Even after that increase, the dividend yield is a juicy 6.4%. The company is highly cash generative, which could be good for future dividends. That is why I hold these UK shares.

The long-term decline in the number of cigarette smokers threatens both revenues and profits. But the company’s pricing power can help mitigate that and it is also building a non-cigarette business at speed.

I was becoming increasingly frustrated with the apparent lack of share price growth, and didn’t see much changing over the next year or so.

Share price performance

The Unilever share price hasn’t moved since the start of 2022, and is back to where it was in 2017.

In 2021, both revenue and operating profit were lower than they were four years earlier. The UK’s third-largest listed company appeared to be stuck in the doldrums.

Nelson Peltz

Although I welcomed the appointment to the board of Nelson Peltz, the billionaire activist investor, I felt it would be a long time before his impact became visible.

As a director of Procter & Gamble, Peltz is credited with introducing several structural changes which, during his four-year tenure, saw the share price increase by more than 40%.

Peltz believes Unilever has become a “suffocating bureaucracy“.

However, Unilever generates most of its income from well known brands (such as Marmite, Lynx and Dove) and in these cost-conscious times, I felt consumers would shun these for less expensive labels.

The Chief Executive of Tesco, Ken Murphy, recently observed that shoppers were “watching every penny to make ends meet“.

Shareholder returns

I also felt that the company’s dividend policy was a little mean, with its yield being slightly below that of the FTSE 100 average. Unilever is part way through a €3bn share buyback programme, but I prefer cash in my hand.

I therefore decided to sell. But then, along came Kwasi Kwarteng, and the now infamous mini-budget.

The result was a week of turmoil in the financial markets, with the pound crashing to an all-time low against the dollar, and the FTSE 100 falling by nearly 4%.

However, amid all the doom and gloom, Unilever’s share price went up by 1.3%.

Regrets

That’s why I have seller’s remorse.

The way in which the share price bucked the market, reminded me of its great defensive properties.

Unilever generates a significant proportion of its revenue in dollars — more than half of its sales come from outside Europe — but reports its results in euros. This means the company benefits from a strong dollar.

For the same reason, as a UK investor, I can be protected against a weaker pound.

In addition, the consumer giant with a £100bn market cap, generates nearly 60% of its sales in emerging markets, where growth is likely to be faster than in more established territories.

And although Unilever’s products might be more expensive that those of some of its rivals, shoppers do have a loyalty to their favourite brands, even when cash is tight.

A lesson learned

So, what has this experience taught me about investing? Think, think, and think again.

The proceeds from selling my shares have gone on something else, so I’m unable to invest once more. As the old saying goes, act in haste, repent at leisure.

But not all shares have fallen. Both among risers and fallers, I see some attractive options for my portfolio right now. As a believer in long-term investing, here are three shares I have either bought or would consider buying right now if I had spare money to invest.

Unilever

The investment case for consumer goods giant Unilever (LSE: ULVR) is fairly simple in my view.

It operates in market segments that are likely to see resilient demand from billions of users, such as shampoo and laundry detergents. The company’s collection of well-known and distinctive brands such as Marmite helps keep customers loyal.

That gives the firm pricing power. It has used that to combat rampant inflation. In the first half, for example, although volumes fell 1.6% compared to the prior year period, the company saw underlying sales growth of 8.1% thanks to higher prices.

Inflation remains a risk to profit margins, which decreased in the first half. But I think in the long term demand should be resilient and Unilever’s pricing power should be good for profits.

British American Tobacco

I already own shares in British American Tobacco (LSE: BATS). The company behind products such as Lucky Strike and Vuse is a cash flow machine thanks to the high margins and resilient demand of the tobacco industry.

Over time that could change. Cigarette smoking is in long-term decline and the company has a large debt pile that could eat up free cash flow.

However, I think its experience in managing changing markets across the globe for many decades already could help the tobacco manufacturer face such challenges. It has been expanding its non-cigarette business rapidly. Its portfolio of premium brands gives it pricing power.

Despite rising 27% over the past year, British American Tobacco shares still offer a dividend yield of 6.6%. That is higher than many other FTSE 100 shares. I regard it as attractive.

Legal & General

While those two consumer goods firms have seen their share prices increase in the past year, it is a different story at financial services powerhouse Legal & General (LSE: LGEN). The Legal & General share price has declined 16% over the past year.

But as a long-term investor, I feel upbeat about the outlook for the firm. I expect demand for financial services to remain strong. The company has a long-established brand that can help it win new clients and retain existing ones, without having to spend very heavily on marketing.

Weakening investor confidence could lead to some customers withdrawing money from investment products, hurting profits. But I see Legal & General as a well-run company that I expect to benefit from strong customer demand over the course of the coming years.

These FTSE 100 shares yield 8% and I recently bought them for my portfolio.

Picks and shovels

National Grid (LSE: NG) seems like the ultimate ‘picks and shovels’ investment to me. In a gold rush, not everyone finds gold. But those who supply the goods and services that the prospectors need should make their money.

I see the same in the energy delivery business. However our energy is generated, and by whom, it has to flow through the National Grid networks.

National Grid shares climbed early in 2022, presumably seen as a defensive investment. But the latest energy crisis has sent them down again, back to ‘valuation-as-usual’.

The biggest long-term risk I see is the decline of fossil fuel usage. That could eventually lead to the gas network becoming obsolete. But I reckon whatever doesn’t flow that way must surely flow via electricity instead.

The share price fall puts National Grid shares on a forecast price-to-earnings (P/E) ratio of nine. And there’s a predicted 2023 dividend yield of 6%.

Reliable dividends

Few companies have been paying dividends as reliably as British American Tobacco (LSE: BATS). Well, except maybe its peer Imperial Brands. The British American share price has been in a decline over the past five years.

That’s left the stock on a forecast P/E of only 10. And we have a predicted dividend yield for the current year exceeding 7%. By 2023, analysts reckon the company will be handing over 8%.

The main risk seems obvious. Humans might, eventually, manage to give up on tobacco and consign its producers to history. But tobacco consumption remains stubbornly strong, especially across the developing world. And I suspect its decline will take a very long time.

Meanwhile, British American should have plenty of time to keep developing new tobacco products that don’t involve filling lungs with smoke.

Long-term sentiment

My third pick is not on a low P/E valuation like the first two. It’s Unilever (LSE: ULVR), with a 2023 forecast P/E of around 18.5. That’s higher than the FTSE 100’s long-term average, but relatively low by Unilever’s standards. We’ve traditionally seen a premium valuation because investors like the company’s defensive characteristics.

The Unilever share price is quite a bit below its pre-pandemic peak now.

One danger is that rising inflation and interest rates will lead to people spending less and buying fewer Unilever products. Investors might also see the share valuation as still being a bit rich, and more in line with previous better times.

But I think Unilever’s wide range of essential products makes it one of the most defensive producers of all retail brands.

Portfolio

Starting a FTSE 100 portfolio today, I’d also be attracted to what I see as depressed recovery candidates. In particular, I’m thinking of banks and housebuilders.

But these three would almost certainly be in there, as the three I rate among the strongest defensive buys for 2023.

These conditions can cause markets to be more volatile than usual. It can even result in a crash, which occurs when a major exchange falls at least 10% in a single trading day.

On the surface, a stock market crash might seem bad news, but it’s important to remember markets are cyclical and will always move up and down. That’s why I’m viewing this as an opportunity for me to add stocks to my portfolio at a lower price. 

I’m interested in adding defensive stocks to my portfolio and shares in companies that can capitalise on high energy prices. 

Let’s take a look at two of these stocks. 

On the defensive 

Defensive stocks are well-established companies in industries such as consumer staples that provide consistent earnings and stable returns, regardless of economic conditions. 

One company I think fits this description is Unilever (LSE:ULVR). Its extensive portfolio of brands and global business means that it has a regular customer base of millions of people. Regardless of economic conditions, demand for the likes of household cleaning products and personal hygiene items will continue to be consistent.

The stock has performed well recently and is up 16% in the last six months. 

It is logical to assume that some consumers may swap branded goods for cheaper alternatives as the cost-of-living rises. This switch may impact Unilever’s growth in the short term. 

Nonetheless, brand loyalty for Unilever’s products such as Marmite, Persil and Dove is strong. I believe that consumers will stick with these much-loved brands or, even if they make the switch briefly, will return to purchasing these items in the long run. 

Moving forward with renewables 

The second stock I think will perform well in the current economic climate is Greencoat UK Wind (LSE:UKW). Greencoat operates 45 wind farms across the country that generate clean electricity for UK households. 

In the past year, the stock is up over 12%. In the same time period, the FTSE 250 is down 26%.

The company announced in its half-year results that it generated net cash of £328m and is issuing a dividend of 3.86p a share. These strong results are likely a result of increasing demand for renewable energy sources given the sky-high gas prices. 

It’s important to note that maintaining wind turbines is not a cheap business. As we become more prone to extreme weather events, Greencoat could see costs increase as it tries to keep current turbines working. 

I still think Greencoat is in a strong position to capitalise on the shift from fossil fuels to renewables. The rising and sustainable dividend makes it a good income stock for my portfolio.

Good Degree of progression

Looking at Unilever’s stock performance year-to-date against the FTSE 100, I can see it’s done relatively well. Its share price is largely unmoved while the UK index has declined by about 5%. Additionally, Unilever has a 3% dividend yield that has helped investors further hedge against the impact of inflation on their investments.

What’s behind the robust Unilever share price performance then? It can be attributed to its strong brand presence paired with demand inelasticity for most of its products. These brands tend to be staples such as Dove, Knorr, Cif, and more. Hence, the company can maintain its already excellent profit margins by passing on higher costs to consumers. This was evident in the half-year results that saw numbers coming in above consensus.

A new Dawn

That said, despite the strong performance, investing in Unilever shares involves a couple of risks. For one, CEO Alan Jope is planning to leave at the end of 2023. This is partly due to pressure from unhappy investors after Unilever bungled its attempt to buy GSK‘s consumer healthcare business. Renowned fund manager Terry Smith even accused it of losing its focus on profit. Therefore, the long-term outlook for the company remains uncertain as competition for a new CEO is hot, with competitor Reckitt Benckiser also searching.

Second, Unilever’s financials aren’t in the best state. Its balance sheet leaves plenty to be desired as it currently has a debt-to-equity ratio of 141.6%. Its debt has also been steadily increasing since 2018 due to dividend payouts. In my opinion, this isn’t good allocation of capital as I’d rather have Unilever pay off debt and shore up cash levels than give out dividends and incur higher debt.

Positive Signal?

So, what do I make of Unilever shares? Well, it’s worth noting that the stock recently received favourable coverage from Goldman Sachs. The investment bank maintains its neutral rating on the stock, but stated that pricing momentum should support the group’s growth outlook.

Consequently, analysts at Goldman expect Unilever to report 8.5% sales growth in Q3, which is higher than the average consensus of 7.9%. Overall, this would translate into full-year growth of 7.8%, compared to the company’s guidance of 6.5%. And with India set to overtake the US as the producer’s largest business region, the emerging market could help boost sales by quite some margin in the medium term.

Nevertheless, I’m still not convinced enough to purchase Unilever shares. While the short-term prospects look decent for the company, I’m less certain about its long-term vision given the state of its balance sheet and departing CEO. I’ve no doubt that the blue-chip stock will do just fine, but I reckon I can boost my wealth by buying shares in companies that have better growth potential and more robust financials.

The Bank of England stepped in to stabilise financial markets, and it looks like it has worked for now.

With falling stock prices, are there opportunities to buy Footsie shares at a discount?

I believe so, but much depends on my time horizon. As a long-term investor, I should be able to withstand short-term stock market wobbles.

Investing in the FTSE 100

Over the coming weeks and months, share prices could be driven more by factors such as interest rates, or investor sentiment. But if I plan to hold my shares for several years, I’d expect the investments to eventually become fruitful based on their fundamental attributes.

For instance, I’d look for shares that offer stable earnings growth, strong balance sheets, and sustainable competitive advantages. If my FTSE 100 picks can maintain these characteristics, I’d expect them to grow over time.

I’d also want to own big and established brands that have survived over many decades and through several market cycles.

That said, if I was investing £1,000 right now in the current market environment, I’d still want to limit my downside as much as possible. That’s why I’d focus on buying cheap but defensive businesses.

A portfolio staple

First I’d consider 100-year-old consumer goods giant Unilever (LSE:ULVR). This global business operates in over 190 countries, and its products are used by over 3.4bn people every day. It owns many established and popular brands that include Ben & Jerry’s, Domestos, and Dove.

Unilever benefits from a 15% profit margin and 15% return on capital employed. In addition, its 4% dividend yield should also provide me with regular passive income while I wait for the share price to rise.

Bear in mind that the cost-of-living crisis could lead to customers moving to cheaper competitor brands.

That said, Unilever has survived through recessions before. It’s also trading at a relatively low price-to-earnings ratio of 17x. That suggests an attractive entry point for this quality business and I’d happily buy these shares right now.

Defensive defence

Next, I’d buy aerospace and defence company BAE Systems (LSE:BA.). 2022 has seen a greater focus towards defence, and government spending in this area is set to rise.

I like that its long-term contracts provide stable cash-flow over many years. It also has a successful track record in delivering solid returns for shareholders, in my opinion. And I reckon that is likely to continue.

BAE is a world-class and technology-led business. Also, 63% of its sales are in the US and UK, where it has deep customer relationships. That said, having a concentrated customer base could become a headwind for BAE if these countries cut back of defence spending.

Overall, though, this FTSE 100 defensive defence contractor offers a double-digit profit margin, and a 3%+ dividend yield.

I’d happily split my £1,000 investment and buy both shares for my Stocks and Shares ISA.