Unilever (LSE: ULVR) was in the news this week with its new vegan food targets. The company wants to reach €1bn in sales of plant-based foods by 2027. That would need a five-fold rise in sales, so it’s no easy target. But with the Unilever share price resilient in 2020 and up 55% in five years, I wouldn’t bet against it. In fact, if I could hold only one for the next 20 years, I’d choose Unilever as my best share to buy now.
On the vegan thing, it’s not that the UK population is shifting to veganism in any great numbers. But, according to Kantar, consumers are “adopting a more flexitarian routine“. I had fish, chips and peas last night, and that’s flexitarian enough for me. But the real point is that Unilever is almost everywhere.
When commenting on Unilever, my Motley Fool colleague Cliff D’Arcy was recently reminded of one of Warren Buffet’s key recommendations: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.“
For Cliff, Unilever fits the wonderful company category close to perfectly. I agree, and for me to pick one best share to buy, I would have to consider it wonderful. Before I look at the stock’s valuation, let me explain why I think Unilever is unavoidable.
Love it, hate it, you can’t avoid it
The most wonderful companies must surely be the ones whose products everybody buys. You know, things like essential food and cleaning products. Well, Unilever reckons its brands are present in 98% of UK households. And that its products are used by two billion people every day. That alone would tempt me to name Unilever as my best share to buy.
Some of Unilever’s brands command annual sales of more than a billion euros. They include Hellmenn’s (and yes, there’s a vegan mayo), Knorr, Lipton, Axe/Lynx, Magnum… and more.
Marmite, love it or hate it, is a Unilever product. Like a bit of Colman’s on your beef? Yep, Unilever. Ben & Jerry’s and Wall’s are among those catering to our sweet teeth. Prefer PG Tips to Lipton tea? You still can’t get away. In the cleaning and personal care stakes we have Cif, Domestos, Vaseline, Sunsilk, Dove and, erm, Zhonghua and Zwitsal. There are dozens and dozens of brands sold around the world that we never see on these shores.
I’m not at all surprised that 98% of UK households have Unilever products. What puzzles me is how the other 2% manage to avoid them. But to make it as my best share to buy, the valuation must also be right, right?
Is it really my best share to buy?
Forecasts suggest a price-to-earnings of around 20. That’s higher than the FTSE 100’s long-term average of around 14. But I’d expect a wonderful company to command a higher valuation. And I think Unilever is well worth it. The dividend looks set to yield a little over 3%, and yes, there are bigger ones out there. But Unilever just keeps its dividend going, and growing, year after year.
Would Warren Buffett buy Unilever? As Cliff pointed out, he tried to. All of it. I’ll be happy with just a little bit.
