China Still Looks Good For Unilever Plc

How many of my fellow Fools remember Japan in the 1980s?

For those of you who don’t, Japan was the next big thing. It was going to be the biggest economy the world had ever seen and was simply unstoppable. It was going to dominate the world economically, pushing the US and Europe into second and third places respectively.

Then, it crashed.

Since then it has endured a very long “lost decade”, with the Japanese stock market still being some way off its all-time high.

So, commentators are understandably wary about saying that China is going to become the biggest economy in the world. After all, we’ve been down that ‘road’ before with Japan, haven’t we?

However, I believe that the Chinese growth story still has a long way to go. Indeed, in recent weeks the signs from China have been improving.

Trade data showed record monthly imports of a wide range of commodities, including iron ore and oil. Meanwhile, industrial production at large enterprises (a measure that tends to be closely linked to GDP) increased by 9.7% versus July 2012.

Furthermore, a recent flash purchasing managers index (PMI) figure showed growth for the first time in four years.

So, Chinese growth may not be over just yet and I think one company that can benefit from this growth is Unilever (LSE: ULVR) (NYSE: UL.US).

A key reason for this is that Unilever is being extremely shrewd in its approach to China and other emerging market economies. It is accepting slightly lower prices than it could otherwise achieve so as to ensure that its products are very widely stocked. It also heavily incentivises local sales agents so that its products are prominently displayed in various outlets.

Doing so means that Chinese customers are trying Unilever’s products, often liking them and hence usually becoming fans of the brand. This means that Unilever is steadily building a loyal customer base in China, affording the company an extremely bright (and highly profitable) future.

Indeed, with shares trading on a price-to-earnings (P/E) ratio of 17.6, this compares reasonably well to the FTSE 100, which has a P/E ratio of 14.9. Although it has a higher P/E, I believe Unilever deserves to trade on a premium to the wider index as a result of its impressive long-term growth prospects.

Of course, you may already hold Unilever or be looking for another idea that could give your portfolio a boost.

If you are, I would recommend you take a look at this exclusive report entitled The Motley Fool’s Top Growth Share.

It’s completely free and without obligation to view the report – click here to take a look. It could be well worth checking out if, like me, you are a growth-seeking investor.

> Peter does not own shares in Unilever. The Motley Fool has recommended shares in Unilever.