Shares in FTSE 100 consumer goods giant Unilever (LSE: ULVR) were on the front foot in trading this morning, despite the company posting a fall in underlying sales growth over the three months to the end of September. The 2.9% rise achieved by the £120bn-cap business over the third quarter of its financial year was down from 3.5% in Q2.
That investors don’t seem all that concerned may be partly down to the fact the company’s performance in emerging markets was more encouraging. That highlights why geographically diversified companies such as Unilever can be ideal for most defensively-focused portfolios. In these markets, collective sales rose 5.1%. Overall revenue increased by 5.8% — in line with analysts’ forecasts, although this was helped by a 2.3% currency boost.
Investors are also likely to be relieved by the prediction full-year results will show an improvement in profit margins and “another year of strong free cash flow.” Looking ahead, Unilever said it was now anticipating underlying sales growth of somewhere “in the lower half” of its multi-year range of 3-5% in 2019.
Newish CEO Alan Jope (who replaced Paul Polman at the helm late last year) seemed satisfied with these numbers, saying the performance had shown “a good balance between volume and price.” He also commented that the owner of ‘sticky’ brands, such as Marmite and Pot Noodle, was “taking action to remain relevant to the consumer of the future, such as setting stretching goals on plastic use.”
So, are the shares worth buying? Well, they certainly aren’t cheap, despite being 12%-or-so lower in value than the all-time high hit back in September. That said, the current price-to-earnings ratio of 21 is pretty much bang on its average valuation over the last five years, suggesting that new investors won’t necessarily be overpaying. A 3.1% yield, while nowhere near as high as that offered by other top-tier firms, is worth grabbing and should be adequately covered by profits.
For me, Unilever is just the sort of stock to hold if markets get choppy. It won’t necessarily rise while others fall, but the predictability of its earnings should ensure any damage is both temporary and relatively limited.
Another defensive demon
Another stock I think should appeal to defensively-minded investors is Robinsons and J2O owner Britvic (LSE: BVIC). Even if the UK does enter a recession, demand for small-ticket items, like the drinks produced by the FTSE 250 member, is unlikely to be hit as hard compared to those selling more discretionary items.
Things have been fairly quiet at the business since I last looked at its stock in July. The only real news was the appointment of a new chief financial officer (Joanne Wilson). To be honest, that’s how things should be with any company worth holding for the long term… no panic, no stress, just quietly chugging along.
Notwithstanding this, Britvic’s stock has been in scintillating form, moving almost 40% higher in the last twelve months alone. Following this strong performance, shares currently change hands for almost 19 times earnings. Again, that’s not cheap compared to the general market, but it does, I think, reflect the quality on offer (based on consistently stellar returns on capital employed).
A secure-looking 2.8% dividend yield is another bonus, particularly for those only looking to protect their wealth in the event of an economic downturn.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019