It has been a bloody six months on the FTSE 100, one that has left many big-name stocks bathed in red.
BP and Royal Dutch Shell are down 20% and 15% respectively in that time. Tesco and J Sainsbury are both down more than 20%.
BHP Billiton and Rio Tinto are down 32% and 15% respectively. GlaxoSmithKline is down 10%.
All are solid blue-chips with red faces, confirming that no stock, no matter how big, is ever safe.
The Goodies
Although right now, Reckitt Benckiser Group (LSE: RB.) and Unilever (LSE: ULVR) (NYSE: UL.US) look like happy exceptions.
Despite the odd shortlived swing, these stocks keep delivering the (household) goods, year after year.
Whether you measure their performance over five years, one year, six months or one week, they have delivered a positive return.
Can this really continue?
Price Worth Paying
I’ve always resisted buying these two stocks, because both have been expensive by conventional metrics, while their yields disappoint.
It’s the same story today. RB trades at more than 22 times earnings and yields a little over 2.5%.
Unilever trades at 21 times earnings and yields a slightly juicier 3.3%.
That is all notably below the FTSE 100 average of around 15 times earnings on a yield of 3.5%.
But as they say, you get what you pay for.
Emerging Worries
Another reason I was sceptical about these two companies was the slowdown in the emerging markets, which I feared could turn into a full-blown retreat in China.
This was RB and Unilever’s big shot at future growth, as emerging market consumers loaded up their shopping trolleys with Western-branded processed foods, household goods, and health and beauty items.
The ever-strengthening dollar could put a further squeeze on emerging markets spend, but investors aren’t worried for now.
Are these stocks bullet proof?
Reassuringly expensive
RB and Unilever both posted disappointing results last October, and investors were further rattled by warnings that global consumer spending was under threat. Analysts warned of slow growth future and overpriced valuations.
But the growth has continued, and both stocks still look reassuringly pricey. Brokers are a little more sceptical about Unilever, which suffers from a series of ‘sell’ and ‘underweight’ ratings, but sentiment towards RB is positive.
Unilever reports on Tuesday, with Q4 sales expected to rise by around 5%. Investors will be focused on the outlook for Europe and China, and the prospect for some much-needed dividend growth.
But right now, it is hard to find more solid investments.
