With all of the current concerns surrounding the emerging market growth story, it seems appropriate to focus on Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGLY.US), since a large proportion of its sales are derived from developing nations.
Indeed, the strength that Reckitt Benckiser seems to have over many other consumer goods companies that are also focused on sales growth in faster growing economies is that its goods are generally consumer staples. In other words, goods that the developed world would consider as relatively basic, things like Dettol, Strepsils and Nurofen, as opposed to discretionary items such as beauty products and more expensive clothing items.
Therefore, while the pace at which emerging markets grow is likely to change over time, demand for consumer staples should be relatively consistent and not experience the same degree of ‘lumps and bumps’ as the demand for other, discretionary items does.
So, while the emerging market growth story looks set to remain volatile, Reckitt Benckiser could be a relatively less risky means of gaining exposure to developing markets, simply because of the types of products it sells.
Furthermore, Reckitt Benckiser continues to invest heavily in exposure to emerging markets, although the effects may not yet be obvious to investors. For instance, Reckitt Benckiser has stepped up marketing campaigns in emerging economies and is attempting to increase brand loyalty so that it develops a stable and consistent long-term income stream.
The customer loyalty that it currently enjoys in many developed markets will take time to build in emerging economies, but Reckitt Benckiser appears to be well on its way to achieving this goal.
In addition, Reckitt Benckiser remains reasonably valued. Evidence of this can be seen in the free cash flow yield, which currently stands at just over 5% and highlights that, while shares have outperformed the FTSE 100 by around 10% over the course of the last year, they remain reasonably priced — especially for longer term investors.
Therefore, with it having a potent mix of vast long-term potential as well as being reasonably priced (as highlighted by a relatively strong cash flow), Reckitt Benckiser could help you retire early.
