The ancient Greek mathematician Archimedes asserted: “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
For global leverage, look to Unilever PLC (NYSE: UL).
One of the best “defensive growth” havens is consumer staples, and a particularly attractive stock in this sector is the diversified giant Unilever. With a market cap of $118 billion, Unilever offers healthy growth and income, and it’s a bargain to boot. As I explain below, the company also is making forays into the booming marijuana industry.
European-based stocks present future investment opportunities, especially consumer staples companies with rosters of international brands.
The STOXX Europe 600 has been making a comeback in recent weeks, as investors expect the global economy, the European Union in particular, to begin recovering sometime in the first half of 2023.
Despite headwinds such as inflation and tightening interest rates, jobs growth and consumer spending have shown resilience in the U.S. and Europe.
The Russia-Ukraine war is a drag on the Continent’s growth but major European democracies are weathering the energy crisis better than feared. Global inflation also is starting to peak.
That said, risks remain. Notably, we could suffer a setback with the coronavirus, inflation remains elevated, and supply chain disruptions are persistent. Amid this paradoxical backdrop, investors who seek both growth and downside protection should stick with large-cap, multinational companies that make products with enduring appeal.
Read This Story: Rattled By The Headlines? Take The Long View
The unification of Unilever’s Dutch and UK arms under a single London-based entity was completed in November 2020. With headquarters in London, Unilever wields a portfolio of ubiquitous household labels that are sold in more than 170 countries throughout Africa, Asia, Latin America, the Middle East, North America, and Western Europe. Analysts estimate that Unilever’s consumer products are used by one out of every two persons on the planet.
The company’s stable of everyday items encompasses an enormous range of categories, including dressings and spreads, ice cream and beverages, personal care, and home care. The company straddles both the consumer staples and consumer discretionary sectors, with an emphasis on staples.
Unilever’s brands include blockbuster sellers such as Hellmann’s mayonnaise, Lipton tea, Knorr soups, Lux and Dove soaps, Ben & Jerry’s, Klondike, Slim Fast, Popsicle, Ragú, and Sure and Degree antiperspirants.
The company continues to push its iconic products into emerging markets, where increasingly affluent middle class consumers associate Unilever products with the good life in the West.
Coveted brands and cost efficiencies, combined with steadfast consumer spending, put Unilever in a strong position for the rest of Q4 and into 2023.
For the first half of 2022, UL’s revenue came in at 14.8 billion euros, a year-over-year increase of 14.86%. Diluted earnings per share came in at 1.13 euros, a year-over-year decline of 4.7%, due to the aforementioned macro headwinds.
But conditions are improving. At Unilever’s third-quarter 2022 earnings conference call October 31, company CEO Alan Jope stated:
“Unilever has delivered another quarter of growth in challenging macroeconomic conditions. Underlying sales growth improved to 10.6%, led by further increases in pricing with only a limited impact on volume, and we now expect underlying sales growth for the full year 2022 to be above 8%.”
The company’s future prospects are further enhanced by the steps it has taken to improve efficiency, by streamlining operations and outsourcing generic functions that are more cheaply handled in developing countries. These efficiencies are helping the company offset current woes in the global supply chain.
Human resources, information technology, supply chain management, and a host of other functions that Unilever once handled internally are now outsourced. The company is using this cost-cutting program as leverage to boost profitability.
The rise of the global middle class…
Over the long term in the developing world, disposable incomes will rise in tandem with consumer sophistication. Emerging markets also have populations that are younger, and hence freer spending, than those in developed countries.
This boom in the global middle class will translate into a huge increase in spending for basic consumer items that most North Americans and Europeans take for granted.
Unilever is playing pied piper to this fledgling (and increasingly status conscious) middle class.
As of this writing, Unilever’s 12-month forward price-to-earnings ratio (FPER) stands at 17.1, which is a bargain compared to the FPER of 19.9 for the consumer staples sector, and only a slight premium to the FPER of 16.5 for the S&P 500 (see chart).
Based on the analyst consensus, UL’s earnings per share over the next three years is projected to grow 26.25%.
Now sporting a hefty dividend yield of 3.90%, Unilever is appealing to income and growth investors alike. The company has weathered the pandemic and it’s positioned to thrive when current global headwinds dissipate.
Invading the marijuana market…
With current cash on hand of $6.58 billion (most recent quarter) and manageable debt, Unilever boasts an ample war chest for future acquisitions.
My sources in the cannabis industry tell me that UL is looking to make major forays into the pot sector next year.
Indeed, Unilever recently inked a distribution deal with Canada-based cannabidiol (CBD) maker Neptune Wellness Solutions (NSDQ: NEPT) that’s on track to generate up to $100 million or more a year in sales.
Food and beverage conglomerates like Unilever are buying up companies that make branded marijuana products, including everything from cannabis-infused beer to THC-laced gummy bears.
Companies in the consumer foods, health services, and cosmetics industries are increasingly infusing their products with marijuana. Acquiring a small local or regional brand, such as Neptune Wellness, is a fast way to accomplish this goal.
Marijuana has emerged as a consumer staple, as reflected by the soaring sales this year for pot. That’s why I just launched a brand-new service detailing how you can financially benefit from the legalization of cannabis. Called Marijuana Profit Alert, it’s your guide to making money in these tumultuous times. Click here to learn more.
John Persinos is the editorial director of Investing Daily. You can reach John at: mailbag@investingdaily.com
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