Is this forgotten FTSE 100 hero about to make investors rich all over again?

Investors loved this top FTSE 100 stock just a few years ago, but then things went badly wrong. Harvey Jones is now betting on a recovery.

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Life goes in cycles, and that’s certainly the case with FTSE 100 stocks. Winners become losers, and vice versa. Consumer goods giant Unilever (LSE: ULVR) is a great example. 

For years, the Unilever share price only seemed to climb and climb, making investors fortunes. I watched fascinated, and frustrated. I prefer to buy stocks when they’re down rather than up, as this gives me a cheaper entry price and reduces risk of price falls. Unilever never gave me that opportunity.

It always seemed to be climbing, and was routinely expensive, trading at around 24 times earnings. The yield barely scraped 2%. So I decided to sit and wait. Suddenly, instead of going right, everything started going wrong for Unilever.

Share values can be cyclical

The slump took me by surprise. Unilever has more than a billion customers in more than 200 countries It sells everyday essentials that people need to buy, protecting its revenue from the vagaries of fashion and offering some protection in a downturn. 

Whether it’s Cif, Colman’s, Domestos, Dove, Marmite, Surf or Vaseline, most of us have at least one Unilever product in our homes, and typically a lot more. Yet the company started to attract the attentions of activist investors, who thought it was too big, too sprawling, too lacking in focus, and pursuing the wrong strategy by elevating social responsibility. 

Throw in the cost-of-living crisis, and Unilever was on the rack. Suddenly, its share price was falling, and it was cheap. Even the yield was starting to look attractive.

I’d waited long enough. So on 7 June last year, I bought Unilever shares at a valuation of around 17 times earnings, with a yield of 3.75%. I applauded myself for being patient and bagging a bargain. I didn’t feel so clever when my shares immediately dropped 10%, leaving me in the red.

Which is where I stayed. Until the last month, when Unilever shares suddenly jumped 7.97%. The group had cheered investors with a positive first quarter, with all five business divisions delivering underlying sales growth. 

Stock on the up

My holding is now in the black – just – worth 2.87% more than I paid. Plus I’ve received my first dividend. The share price is still down 5.62% over one year and 9.02% over five. Which is pretty serious underperformance, given that the FTSE 100 is up 5.59% and 14.02% respectively over the same periods.

The shares are still relatively cheap by previous standards, trading at 18.76 times earnings. The yield of 3.54% isn’t too shabby, either.

CEO Hein Schumacher is pressing on with his “commitment to do fewer things, better and with greater impact”. Yet I don’t expect Unilever to suddenly go gangbusters. Underlying sales growth should be a modest 3% to 5% this year. Investors remain suspicious. Understandably so.

The board is struggling to rally buyer interest in its ice cream business, which includes Magnum, Wall’s and Ben & Jerry’s, which it had hoped to sell for £15bn. Another concern is that the global cost-of-living crisis drags on, and shoppers stick to buying cheaper brands.

On balance, I think Unilever has started on the road to recovery and it’s not too late to hop on board. I’m planning to buy more before it climbs higher.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has positions in Unilever Plc. The Motley Fool UK has recommended Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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