Uncovering The #1 Global Consumer Play: Unilever plc, SABMiller plc Or Diageo plc?

Which of Unilever plc (LON:ULVR), SABMiller plc (LON:SAB) or Diageo plc (LON:DGE) is the top global consumer play right now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Pound Coins

It’s clear that in the long term at least, emerging markets offer companies and investors huge potential. That’s because their pace of economic growth is so strong that levels of wealth should increase for decades to come, with the middle classes in countries such as India and China being especially appealing to consumer goods companies such as Diageo (LSE: DGE), Unilever (LSE: ULVR) and SABMiller (LSE: SAB) who all target a mid-to-upper price point with their various products.

However, if you could only choose one of the three, which should you go for?

Growth Potential

While all three companies have vast long-term growth potential, it can be difficult to quantify their respective rates. However, if we look at a shorter timeframe, it should be easier to get an idea of which of the three companies is currently delivering the strongest bottom line growth.

Indeed, when it comes to the current year and next year’s growth potential, SABMiller seems to be the pick of the three companies. It is forecast to post earnings growth of 7% in the current year and 10% next year. This is ahead of Unilever, which is forecast to see earnings per share (EPS) flat-line this year before rising by 9% next year. Meanwhile, Diageo has just reported a mild fall in earnings, but is all set to bounce back next year with growth of 7%.

Valuations

Clearly, there is little to choose between the three companies when it comes to growth rates. However with regard to valuations there is a bigger difference. That’s because, while SABMiller has a slightly higher growth rate than its peers, its price to earnings (P/E) ratio is considerably higher at 20.7. Indeed, Unilever’s is less than that at 19.7, while Diageo appears to offer the best value of the three stocks, since it has a P/E of 17.2.

Of course, while none of the three companies are cheap compared to the FTSE 100 (which has a P/E of 13.5), their long-term potential and above average short-term growth prospects mean that a premium is well deserved.

Looking Ahead

Although it has just reported a disappointing year, Diageo could prove to be the most logical buy of the three companies. That’s because it has the lowest valuation and also is within touching distance of its two peers when it comes to shortto medium term growth prospects. Furthermore, its earnings profile, along with SABMiller, is perhaps more stable than that of Unilever, since demand for alcohol tends to be fairly robust come economic rain or shine.

Clearly, all three stocks are high quality and are likely to perform well over the medium to long term. However, after reporting a disappointing set of results, Diageo could be the one that offers the best opportunity right now. As such it appears to be the #1 global consumer play.

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool recommends Unilever. The Motley Fool owns shares of Unilever.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »