With the UK stock market having made a volatile start to 2014, it could be worth looking at companies that have a defensive slant. In other words, they sell or produce products that are likely to be in high demand whatever the state of the world economy.
One such company is SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US), purveyor of a wide range of beers across the globe. Over the last 5 years, SABMiller has been able to deliver consistent levels of revenue and profit growth, perhaps because alcoholic beverages are a good product to be selling during both economic booms and recessionary periods.
Indeed, demand for alcoholic beverages tends to remain fairly constant, as people wish to celebrate more often when the going is good, but also choose to drown their sorrows when the economy is going through a rough patch.
Therefore, it’s of little surprise to see the level of consistency that SABMiller has been able to achieve with regard to its top and bottom lines in recent years.
In addition, SABMiller is not overly exposed to one particular region. The importance of this is perhaps diluted because of the aforementioned consistent demand for alcoholic beverages, but a diverse exposure to developed and developing markets across the globe can, nevertheless, only be a good thing for long-term shareholders.
Not only is it likely to mean less risk from changes to customers’ spending habits, it also means that SABMiller is able to tap into higher growth rates in specific regions without overexposing itself to any one part of the world.
SABMiller has all the characteristics of a defensive company, in terms of top and bottom line growth being fairly consistent. However, as a stock it seems to offer the potential for attractive long term gains — especially if investors are bullish on the long-term future of the UK stock market.
That’s because SABMiller has a beta of 1.27. This means that (in theory) its share price will increase by 1.27% for every 1% gain in the FTSE 100. Of course, it also means that SABMiller’s share price should (in theory) fall by 1.27% for every 1% fall in the wider index.
So, SABMiller could be a great stock for long-term equity bulls who are seeking out a company with relatively stable sales and profits. That’s why it could be a stock to help you retire early.
Peter does not own shares in SABMiller.