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Should I Invest In Unilever plc Now?

UnileverConsumer goods company Unilever (LSE: ULVR) (NYSE: UL.US) is big and successful, but that’s not going to stop the firm nipping and tucking its operations to keep forward progress vibrant.

Managements run the best businesses as active organisations, constantly responding to market changes and evolving to optimise their shifting opportunities. Just because a firm gets big doesn’t mean that it has to stagnate like the conglomerates of yesteryear.

Sharper focus on foods

Unilever’s recently announced intention to dispose of its low-margin US pasta business is a good example. Ditching the well-loved Ragu and Bertolli brands, the leading pasta sauce brands in North America, will raise $2.15 billion, and the directors expect to dust the deal by the end of June.

The firm has been streamlining its portfolio in the US for some time and describes this latest move as one of the final steps. The prize is a sharpened focus on the foods business, which the company expects to help deliver sustainable growth for Unilever.

Fast-growing markets

Progress across the pond is encouraging but the real excitement for investors is the firm’s perky looking penetration into emerging markets. About 57% of Unilever’s revenue came from up-and-coming markets last year and, if high single figure growth rates continue, it won’t be many years before results in emerging markets will dominate the share-price performance.

Latin America, Asia and Africa are all important regions for the firm and, long term, the outlook for those economies remains compelling despite short-term jitters. Unilever’s CEO reckons the firm is making sound progress transforming itself into a sustainable-growth company despite on-going trading headwinds and fierce competition in both developed and emerging markets, citing underlying sales growth and strong cash flow as good forward indicators. It’s tempting to imagine the firm’s sharp focus on costs and product evolution leading to higher growth rates if the macro-economic environment continues to improve worldwide.

Valuation

That’s exactly what investors seem to be doing and the firm’s valuation seems full. At today’s share price of 2,682p, the forward P/E rating is running at almost 19 for 2015 and the forward dividend yield is around 3.7%. City analysts following the firm expect earnings to grow about 8% that year.

Although Unilever is a growing company, right now I'm far more interested in a share idea for capital gains from one of the Motley Fool's top small-cap investors.

At this under-the-radar gem of a company, a strong recovery in profits followed restructuring and the directors predict double-digit margins driving a profits surge in the years to come.

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Kevin does not own any Unilever shares. The Motley Fool has recommended Unilever.