Yesterday, I was saddened to hear of the death of Charlie Munger, vice-chairman of US conglomerate Berkshire Hathaway. Munger and his long-time friend and business partner Warren Buffett, brilliantly transformed Berkshire into a $780bn behemoth. Had Munger been alive today, I wonder if he’d spot the declining Unilever (LSE: ULVR) share price?
Buffett tried to buy Unilever
Warren Buffett and Charlie Munger were big fans of Unilever, having tried to take over the Anglo-Dutch consumer goods Goliath almost seven years ago.
In February 2017, Kraft Heinz — backed by Warren Buffett and private-equity billionaire Jorge Lemann — launched an audacious £115bn ($143bn) bid to buy the FTSE 100 firm. Following fierce board resistance to this takeover, this mega-deal was abandoned within two days.
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Following this approach, the group’s shares surged 13% to a then-record high, before diving 8% after the deal was scrapped. Had this deal been sealed, it would have been the second-biggest corporate merger at that time.
The Unilever share price slides again
After things calmed down, Unilever stock went on to even greater heights, vindicating the directors’ decision to rebuff the bid.
On 30 August 2019, the shares were riding high, closing at 5,196p each. They have fallen steeply since, losing value over the past four years.
At its 52-week high, the stock briefly hit 4,483.25p on 28 April. However, on the morning of Thursday, 30 November, the stock dived to a 52-week low of 3,716.5p.
The share price has since bounced back and currently stands at 3,762.5p, up 1.2% from 2023’s low. This values this European giant at £93.9bn, making it the FTSE 100’s fourth-largest member.
Here’s how the shares have performed over five timescales:
| One month | -3.3% |
| Six months | -6.6% |
| 2023 to date | -10.0% |
| One year | -9.2% |
| Five years | -11.3% |
Over all five periods ranging from one month to five years, Unilever stock has delivered negative returns, include a 10% fall in 2023. Yet I’m almost certain that this losing streak will not continue forever.
I already own Unilever
If my wife and I didn’t already own shares in this long-established business, I’d have done my best to buy a stake today. For the record, we bought the stock at 4,122.2p a share in mid-August.
To date, we are sitting on a capital loss on paper of 8.7%. Frankly, I’m shocked at how far the Unilever share price has slid in recent months. To me, this looks like a classic ‘fallen angel’ stock, rather than a dead-duck company.
Today, Unilever shares look as cheap as they’ve been for ages. They trade on a modest rating of 13.4 times earnings, delivering an earnings yield of 7.5%. This means that the dividend yield of 4% a year is covered a decent 1.9 times by earnings.
To be honest, if I were Warren Buffett and could buy this entire business at the current Unilever share price, I’d snap it up. To me, this is great business is experiencing short-term turbulence that will be ancient history five years from now.
Of course, I could be proved wrong. Unilever’s sales growth could continue to slow, hitting its revenues, earnings, and cash flow. Likewise, its popular brands could fall out of favour with younger consumers. But I’m happy to take the opposing side of this bet as an existing shareholder!
