The aim of the game with investing is to protect and grow your capital. Trying to achieve the most capital growth, while at the same time protecting your downside is a tricky balancing act. It’s very easy to buy a selection of stocks with the highest return potential without considering what the possible downside might be.
On the other hand, the safer stocks are usually mature companies with uninspiring growth outlooks, that don’t offer much in the way of capital growth over time.
So, to build the best portfolio, it’s usually sensible to combine safer stocks and those opportunities that offer more room for capital appreciation. And when it comes to safe stocks, Reckitt Benckiser (LSE: RB) and Unilever (LSE: ULVR) have all the hallmarks of investments that you can buy, forget and trust to grow your investment over time.
Seeking safety
Reckitt and Unilever are two of the world’s largest consumer goods companies. There are many leading consumer brands under their umbrellas, and it’s unlikely that the sales of these products will evaporate overnight. Moreover, these two companies have pricing power and can price their products how they see fit, steady price increases alongside inflation will ensure that Reckitt and Unilever will continue to report steady sales growth for years to come.
Simply put, if you want slow and steady growth from your investment, Reckitt and Unilever are two of the best opportunities around. Shares in Unilever currently trade at a forward P/E of 21.4 and support a dividend yield of 3.8%. Reckitt currently trades at a forward P/E of 26.1 and supports a dividend yield of 2%.
Looking for growth
As two of the largest consumer good companies in the world, shares in Reckitt and Unilever are unlikely to rack up a market leading performance any time soon. Slow and steady is the name of the game with these giants. On the other hand, shares in Premier Oil (LSE: PMO) look primed to achieve some impressive share price appreciation for investors as the price of oil recovers because the company is one of the UK’s best-managed oil groups.
In Premier’s May trading operations update management announced that the company is on track to meet its production target for the full year. It also said operating costs were tracking 10% to 20% below the figure budgeted at the beginning of the year and the group has significant liquidity with cash and undrawn bank facilities of $750m. All in all, operationally Premier is a great company, but the group’s success is dependent on a recovery in the price of oil.
Until oil prices recover, Premier is at the mercy of the market, which is why investors should hold the company as part of a well-diversified portfolio to minimise potential losses if the oil market suddenly takes a turn for the worst.
