One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful“. Or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
Shaky start
Unilever (LSE: ULVR) (NYSE: UL.US) has had a bit of a shaky start to 2014. In its final results, released on 21 January, the company revealed that its turnover had fallen by 3%, to £41bn. It also declared that the full-year sales growth in emerging markets was just 8.7%, somewhat down on the previous year’s 11%.
And whilst underlying sales growth had increased broadly in line with market expectations, by 4.3%, that hasn’t stopped Unilever’s share price slumping by over 6% since the start of the year.
So what might have persuaded people to buy shares Unilever last week? Because buy them they did, putting the global consumer goods giant into the number 2 spot in our latest “Top Ten Buys” list*.
A cash-generating giant
Well, whilst Unilever’s final results may have contained some disappointing figures, they weren’t actually as bad as some people feared. That may sound like a small crumb of comfort, but the weakness in emerging markets was something Unilever warned about well in advance, and the increase in underlying sales growth provides reassurance.
Even with the recent fall, Unilever’s shares aren’t cheap — at a forward price-to-earnings ratio of around 18 they’re more expensive than the FTSE 100’s forward P/E of 16.7. And the company’s dividend of around 3.8% isn’t staggeringly better than the 3.2% average of the FTSE 100, and much higher yields are available.
But Unilever is a cash-generating giant, that has an excellent track-record of producing great value for shareholders over the long-term. For example, its dividend has increased by a remarkable 27.8% compound annual growth rate for the past five years.
Expensive – but good value
Unilever is continuing to build a major presence in emerging markets — almost 60% of Unilever’s total revenue came from such regions last year, and the company has set a target of 75% for 2020. Focussing its investment on growth geographies should help ensure robust increases in Unilever’s revenue in the long-term.
Whilst the slowdown in consumer demand in emerging markets was hardly welcome — and also seems likely to continue for a while yet — those markets are still becoming increasingly affluent. This means that demand for, and sales of, Unilever’s premium brands should increase in step. And as its global revenues grow, the company’s on-going cost-cutting and streamlining strategy will boost margins and drive earnings higher, enabling sustained growth in the dividend for the foreseeable future.
So, last week’s buyers may well have seen the current weakness in Unilever’s shares as an opportunity to buy into a 24 karat gold company at something closer to an 18 karat price. Yes, still expensive — but also good value for what you’re getting.
But of course, no matter what other people were doing last week, only you can decide if Unilever really is a ‘buy’ right now.
