3 Reasons Why Unilever plc Should Be Your Next Buy!

Unilever plc (LON: ULVR) has vast potential. Here’s why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UnileverThis week’s positive update from Unilever (LSE: ULVR) (NYSE: UL.US) shows that, even when emerging market growth is below what many investors had hoped for, the company is still able to deliver strong performance. Indeed, shares in the company have posted impressive gains of 8% year-to-date, which is ahead of the 1% rise of the FTSE 100. They could, though, have further to go. Here’s why.

Huge Potential

The types of products that Unilever sells are perfect for the next stage of growth of emerging economies such as China and India. That’s because Unilever focuses on consumer discretionary products, such as luxury food and personal care items that, although perhaps necessary in their basic form, attract the new middle classes of the emerging world. With wealth and prosperity continuing to increase in developing nations, Unilever should naturally see an increase in demand for its products in future.

This is why Unilever could prove to be a more attractive proposition than Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGLY.US). Certainly, Reckitt Benckiser also has potential in emerging economies, but its products tend to be more necessity than discretionary and, as such, it may not benefit to the same extent as Unilever does when the emerging middle classes come into existence on a vast scale.

Great Value

Despite its share price rise over the course of 2014, Unilever still offers good value for money. For instance, its price to earnings (P/E) ratio is a rather hefty 20.6 at current price levels. However, earnings are forecast to increase by 9% next year and, when this is taken into account (as well as the previously mentioned longer-term growth potential), a P/E of 20.6 is more easily justified. Certainly, Unilever’s P/E has been higher in recent years, which shows that the market is willing to rerate the stock upwards and that there is the potential for this to happen in future.

Looking Ahead

Clearly, there is vast competition among consumer goods companies in emerging markets such as China and India. However, where Unilever appeals versus its peers is in terms of the investment it has made in recent years in developing customer loyalty in places such as China. Indeed, it has invested huge sums of time and money in ensuring that its products are prominently displayed in stores across the emerging world and has committed to a significant marketing budget that should pay off in the long run.

This, as well as having the right kinds of products (discretionary versus necessity) for the next stage of emerging markets’ growth and the scope to see an upward rerating of shares in the company, mean that Unilever could have a very bright future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool owns shares of Unilever.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »