So this is the challenge: you can only invest in one share. You have to choose one company to buy into above all others, that you will hold until your retirement. Which is it to be?
Well, in an effort to answer this question, let’s think about what sort of company we’re looking for.
Firstly, I think I would pick a blue chip. Large businesses tend to be more stable. Small caps may grow faster, but they are unpredictable, and if I am investing for the long term I would want a company that keeps producing, rather one that could just be a flash in the pan that’s here today and gone tomorrow.
Earnings is a key criterion
Another key factor for me is earnings. I would choose a business that is consistently profitable. I would tend to avoid companies that are not currently making money but which promise to be profitable at some time in the future. I want to see real proof that this company makes money, and will continue to do so for years to come. After all, the share price is determined not by revenues, nor by number of employees, but by the amount of earnings the company makes.
Then another crucial criterion is to see the big picture. We need to look beyond the day to day movements of stock prices. What are the key cycles that are affecting this share? What trends can we take advantage of? One of the biggest trends that I think investors should buy into is the growth of emerging markets such as China, India and Vietnam. As these markets grow, a rapidly expanding global middle class will be eager to snap up consumer goods. Businesses that cater for this market are likely to do very well.
Cater for the world’s growing middle classes
In contrast, there are other sectors that are under immense pressure, such as UK supermarkets, and the retail banks. And the oil, gas and mining sector is also one to avoid, as a cyclical bear market is something I would never bet against.
So, we are narrowing it down. BP and Shell are out. So are Tesco and Sainsbury. As are UK banks like Barclays.
But what about the consumer goods firms? Well, there are the stalwarts Unilever (LSE: ULVR) and Reckitt Benckiser. Both have been growing their earnings and share price steadily over the past decade. Both are making large and rising profits. And both are big, stable firms that are likely to still be going decades into the future.
If I had to choose between them, I think I would plump for Unilever. Why? Because it has, in my view, the better brands with the greater global reach. And it is expanding rapidly in emerging markets, whereas Reckitt has much more to do in these fast-growing regions. A 2016 P/E ratio of 21.58, with a dividend yield of 3.19%, may seem fully priced, but this is one to tuck away in your portfolio, ready for your retirement.
