The world’s most-quoted and best-known investor, Warren Buffett, made headlines recently because he didn’t invest in airline stocks. Instead, he sold the ones he already owned.
For many, that was a confusing moment. Usually, Buffett is known to load up with shares when they are on sale. Often, that means he’s out buying stocks when other investors are either selling them or avoiding them. But his reluctance to buy or even hold airline shares does make sense in the context of his usual investing style. Normally, he buys shares of good-quality businesses when they are selling at reasonable valuations.
And it’s hard to view airline companies as owners of good-quality businesses. Often, airlines are loaded with debt, and operations are highly cyclical. That means they are sensitive to changes in economic conditions. So the arrival of a pandemic was particularly hard on them.
Not even Warren Buffett can predict the future
Not even Buffett can predict the future. And he had no idea what the future would look like for the airline industry. So it seems he didn’t want exposure to a sector that could suffer further if a second wave of the pandemic arrives.
However, some businesses have been remarkably resilient through the coronavirus crisis. For example, the fast-moving consumer goods sector has been robust, and I reckon we can find many attractive shares within it.
In the FTSE 100, I like the look of Unilever (LSE: ULVR). The firm is a giant in the sector and owns many strong brands in the areas of food, home care, and personal care. You probably know many of them such as Hellman’s, Marmite, Domestos, Cif, Dove, Radox, and others.
In June, the company announced plans to ditch its complicated dual-listed structure. Instead, it will convert to a single parent company listed on the London stock market. The directors reckon the change will lead to a simpler set-up with “greater strategic flexibility, that is better positioned for future success”.
Flexibility in a dynamic business environment
I reckon it’s a great idea. The firm has been chewing it over for around 18 months with a “comprehensive review”. And the directors think the new arrangement will help the company evolve its portfolio “including through equity-based acquisitions or demergers”. They reckon that kind of flexibility is even more important because of the “dynamic business environment” the Covid-19 pandemic will create going forward.
Simplification is almost always a good thing, and I reckon the new, nimbler Unilever will emerge as an ongoing success story in the years ahead. To me, the firm is a good candidate to consider for a £3k investment as part of a diversified portfolio. Similarly, I’d also run the calculator over tobacco supplier British American Tobacco, drinks supplier Diageo, and fast-moving consumer good operator Reckitt Benckiser.