One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful“. Or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
Opportunity to buy
The share price of Unilever (LSE: ULVR) (NYSE: UL.US) has experienced something of a rollercoaster ride over the course of 2013. It began by rising fairly steadily, and by late May it was up just over 20%, comfortably beating the FTSE 100’s 16% gain at that time. But that was followed by a series of largeish falls and less-large rallies, which have left it pretty much exactly where it was at the start of the year, whereas the FTSE 100, whilst also having declined since May, is still showing an increase of around 10% on the year-to-date.
Perhaps some investors see its current weakness, compared to the FTSE 100, as an opportunity to buy, which might be why Unilever was in the number 1 spot in our latest ‘Top Ten Buys’ list*.
So what might be Unilever’s attractions? Well, it’s a well-established global giant of a company, with a portfolio of top-quality brands that command huge consumer loyalty — Dove, Lipton, Omo and Knorr are just four of the more than 400 brand names that Unilever markets worldwide. That puts it in a very strong position to ride out the problems it’s currently facing, such as the slow-down in demand in its emerging markets that saw growth there fall from 10.3% in the first half of the year to just 5.9% in the third quarter.
Of course, in the short term, that slow-down will hurt — Unilever derives almost two-thirds of its revenue from the developing world — and Unilever’s earnings growth will certainly be under more pressure than it has been in recent years.
A knock-down price
But if you take the long term view that the developing world will, well, continue to develop, that emerging markets will eventually become established ones, and that global demand will pick up and continue to grow , then you might consider Unilever’s depressed share price a chance to invest in a top-quality company at a knock-down price.
And there’s always the dividend, of course — Unilever currently offers a yield of around 3.6%. Reassuringly, the company has more than maintained its payouts during the past few years of global economic turmoil, increasing its dividend by at least 8.0% per annum in the last two years — and analysts expect it to increase by at least the same again, with a yield of 3.9% forecast for 2014 .
Whilst the problems it’s currently experiencing are likely to result in reduced, or at least slower-growing, earnings in the short term, over the longer term Unilever is well placed to generate above-average earnings growth and dividend increases that will beat inflation by a good margin.
But of course, no matter what other people were doing last week, only you can decide if Unilever really is a ‘buy’ right now.
