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Why I believe Reckitt Benckiser Group plc is the perfect ISA investment

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Reckitt Benckiser‘s (LSE: RB) history of producing returns for investors is phenomenal. The Dettol to Durex manufacturer has grown earnings per share by 41% over the past five years, and as income has expanded, the shares have produced a total return for investors of 10% per annum over 10 years, enough to turn an initial investment of £10,000 into £26,500. 

And City analysts are expecting the company’s steady growth to continue for at least the next two years. Earnings growth of around 8% per annum is pencilled in for 2018 and 2019. 

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However, recently the market has become concerned about Reckitt’s growth ambitions. The group missed 2017 profit estimates as harsh trading conditions and rising commodity costs hit the company’s outlook. Meanwhile, analysts believe the firm is trying to acquire Pfizer’s consumer healthcare unit for a sum of $20bn. The problem is, Reckitt does not have the funds to complete such a deal as its balance sheet is already stretched from the $18bn acquisition of US baby milk producer Mead Johnson last year. So the City believes the group will have to ask shareholders for extra cash to fund any deal, which is not the best news for existing shareholders. 

Nonetheless, despite the recent declines, I believe Reckitt remains one of the best ISA investments around because of its defensive nature. Growth might have missed expectations last year, but the firm is still growing steadily overall, and unless there’s a major global catastrophe, the group’s sales won’t fall sharply overnight. 

What’s more, recent declines have pushed the shares down to a sector-average valuation of 16.4 times forward earnings, as Reckitt has the best profit margins in the industry (24% compared to the median 5.4%) I believe it deserves a premium valuation. For income investors, there’s also a 3% dividend yield on offer.

Over 100 years of returns 

Reckitt isn’t the only defensive consumer goods company that would make a perfect ISA buy. PZ Cussons (LSE: PZC), the business behind the Imperial Leather and Carex soap brands, has been producing consumer goods for over 100 years and it looks as if it can keep this up for the next century. 

For the six months ended 30 November, the company reported a 37.3% increase in profit before tax after exceptional items and a 10% increase in basic earnings per share to 5p. Growth is expected to improve in the second half “as a result of further new product launches and distribution expansion” and for the fiscal full-year City analysts are predicting net profit growth of 9.4% followed by an increase of 7% for 2019. 

Shares in the company currently trade at a forward P/E of 16.3 and support a dividend yield of 3.1%. Granted, the above figures look sluggish compared to the market’s top growth stocks, but PZ Cussons provides steady, dependable growth that won’t let you down, making it the perfect investment to buy and forget in your ISA. 

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Rupert Hargreaves owns no share mentioned. 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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