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Two stocks I’d tuck away forever

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Unilever sign
Image: Unilever. Fair use.

You’d think scouring financial results every morning would be good for your financial track record, but the more RNS statements I read, the more I find myself distracted and bottom-fishing for bargains on low P/E values.

In my experience, investors would be better served by buying and holding quality companies for the long term. With that in mind, here are two quality companies I’m considering tucking away in my retirement portfolio for a very, very long time. 

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Are you a uni-believer? 

Unilever (LSE: ULVR) is perhaps the poster boy for quality companies. Its wonderful brands, including Domestos, Dove and Hellmann’s, have a loyal following and have demonstrated pricing power for years. No wonder the company has achieved an average return on capital employed of 24.6% and an average operating margin of 14.8% over the last five years.

The company has consistently hiked its dividend too. In fact, it’s doubled since 2008, but unfortunately Unilever doesn’t look all that cheap right now. It trades on a forward PE of 21.5 and most of the company’s current growth has been driven by price hikes, rather than volume increases. Perhaps this ratio is a little high unless it can find a way to reignite the latter.  

Over the long term, I see significant potential in emerging markets division, especially in India and China. Perhaps these growth drivers are what attracted Warren Buffett’s Kraft-Heinz to the consumer goods behemoth. Its £115bn bid was rebuffed earlier this year and Buffett has announced that it won’t attempt a second. Still, I believe the deal brought attention to the quality of the business and has subsequently boosted the share price a little beyond fair value.

While I wont be buying now, I’ll certainly be keeping an eye on the firm. After all, if it’s good enough for the Sage of Omaha, it’s good enough for me.  The shares are at the very top of my watch list.

Cussons looks affordable 

While you’re waiting for a better price to buy Unilever, you might turn your gaze to a smaller consumer goods company with a massive presence in emerging African markets, PZ Cussons (LSE: PZC)

The company has had a hard time of it recently because its largest market, the oil-dependent Nigeria, entered a recession after the oil price crash a few years ago. However, a few years of flat revenue and profits hide the deceptive quality of the business. 

It commands a portfolio of strong brands in personal care, including Imperial Lather, Original Source and Carex that is not dissimilar to Unilever’s setup. The company’s electrical division, which sells fridges, freezers, washing machines and other white goods in Nigeria and Ghana feels a little out of place compared to the small, repeatable sales of its other brands.

I wouldn’t mind it disposing of this business, but aside from that I believe it is in a great place to grow if some of its struggling markets recover. The drag from Nigeria has hidden some impressive market share growth that, I believe, will eventually impact the bottom line when things clear up. 

Given that its largest market is struggling, perhaps the P/E isn’t the fairest tool to evaluate the company. I believe its strong balance sheet and entrenched brands mean today’s price could prove bargains in the future. 

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Zach Coffell has no positions in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of PZ Cussons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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