One of the most appealing aspects of Unilever (LSE: ULVR) is the breadth of its brand portfolio, with it selling a variety of foods, health and care products. This means that even if sales of one brand are worse than expected, the others tend to pick up the slack and this has allowed Unilever to deliver bottom line growth in four of the last five years, which is impressive.
And, looking ahead, it is expected to increase earnings by 11% in the current year which, if met, would be almost twice the wider market’s growth rate. So, while Unilever does trade at a premium to the FTSE 100 (it has a price to earnings (P/E) ratio of 20.9 versus around 15.9 for the wider index) it seems to be well-worth paying for given its bottom line prospects.
Also having a wide variety of brands is Reckitt Benckiser (LSE: RB), although its growth forecast is somewhat disappointing relative to Unilever’s. That’s because Reckitt Benckiser is expected to increase its bottom line by just 4% in the current year, which is lower than the FTSE 100’s growth rate and, looking another year ahead, is due to increase it by 7% next year.
That’s disappointing and means that Reckitt Benckiser’s current rating of 23.2 looks rather rich. As a result, it could come under pressure in the short to medium term, which means that now does not appear to be the right time to buy a slice of it. Certainly, it has bright long term prospects, but a keener price may be available during the course of the year.
Beverages company Britvic (LSE: BVIC) is somewhat in the shadows of larger and more diversified sector beers Diageo and SABMiller. However, it also offers very strong growth prospects, with its bottom line due to rise by 12% this year, and by a further 8% next year. Both of these figures are impressive and show that Britvic remains a relatively strong growth play.
Of course, it lacks the size and scale of many of its consumer peers and, as such, it trades on a lower valuation, with it having a P/E ratio of 15.8. This appears to indicate that its shares offer good value for money and, while it may not be as stable as the likes of SABMiller and Diageo, it could still deliver strong gains moving forward.
While Imperial Tobacco (LSE: IMT) has a very appealing yield of 4.6%, there is considerable scope for this to move much higher. That’s because Imperial pays out just 69% of profit as a dividend to shareholders which, for such a mature and stable company, seems rather low.
In fact, were Imperial Tobacco to pay out 75% of profit as a dividend, it would equate to a dividend yield of over 5% and, looking at the medium to long term, this could prove to be a major catalyst for the company’s share price. In other words, with investors being yield-hungry as low interest rates persist, Imperial Tobacco could increase its dividend at a rapid rate, thereby increasing investor sentiment in the stock and pushing its share price northwards.
Associated British Foods
Even though Associated British Foods (LSE: ABF) has an excellent track record of earnings growth, with its bottom line having increased in each of the last five years, its current valuation seems to be overly generous.
For example, it trades on a P/E ratio of 28.7 which, when the FTSE 100 has a P/E ratio of 15.9, seems incredibly difficult to justify.
Furthermore, with ABF having a yield of just 1.2%, it offers little in the way of income potential, either. So, while it may prove to be a very defensive and well-diversified business that performs well during challenging periods, its shares appear to be overpriced at the present time and, as such, do not appear to be worth buying.
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Peter Stephens owns shares of Imperial Tobacco Group and 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.