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Is Unilever plc A Better Buy Than Diageo plc And SABMiller plc?

The last six months have been rather disappointing for global consumer goods stocks such as Unilever (LSE: ULVR) (NYSE: UL.US), Diageo (LSE: DGE) (NYSE: DEO.US) and SABMiller (LSE: SAB). That’s because the share prices of all three companies have fallen during the period, with Unilever’s fall of 3% being only slightly better than Diageo and SABMiller’s declines of 6% and 5% respectively.

Looking ahead, though, will Unilever continue to outperform Diageo and SABMiller? And, perhaps more importantly, is it the best buy of the three stocks?

Valuations

While the FTSE 100 is not exactly dirt cheap at the present time, with it having a price to earnings (P/E) ratio of 14.8, it is still cheaper than Unilever, Diageo and SABMiller. They currently trade at significant premiums to the wider index as a result of their relative stability, diversification and strong long term growth potential.

However, of the three, Unilever seems to offer the best value for money. That’s because it has the lowest P/E ratio, with it currently trading on a rating of 18.8. This compares favourably to both Diageo and SABMiller, which have P/E ratios of 19 and 20.7 respectively. This shows that Unilever could see its valuation expand relative to Diageo and SABMiller during the course of 2015, which would be good news for shareholders in the company.

Growth Prospects

Clearly, all three companies have excellent long term growth potential. They have a wide variety of brands and are exposed to the fastest growing markets in the world, which bodes well for their long term profitability. Looking a little nearer term, though, Unilever seems to offer the most appealing growth prospects in the current year and next year, with it being forecast to increase its bottom line by 7% and 8% respectively.

In the case of Diageo, its net profit is due to remain at the same level as last year, with growth of 8% being pencilled in for next year. It’s a similar story for SABMiller, with its bottom line forecast to fall by 1% this year, followed by growth of 9% next year.

Looking Ahead

While many investors may feel that growth of 7% and 8% over the next two years is not particularly enticing – especially when it trades on such a high valuation, Unilever remains a hugely attractive company. It continues to deliver reliable earnings growth, has considerable long-term potential from its vast exposure to emerging markets and also offers a yield of 3.7% that is forecast to grow by 5.5% next year.

As with its valuation and growth prospects, it beats Diageo and SABMiller when it comes to income potential, with them having yields of 3% and 2.2% respectively. As a result of this, and while Diageo and SABMiller remain attractive investment opportunities in the long run, Unilever seems to offer the most appealing investment case at the present time.

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Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.