The Unilever (LSE: ULVR) share price has fallen to levels not seen since the pandemic-induced stock market crash of 2020. In contrast to some of my Foolish colleagues, I think this might represent a great buying opportunity. Let me explain.
Unilever share price: Groundhog Day?
Back in March, investors sold what they could to preserve their capital. As one of the biggest (and therefore most ‘liquid’) UK stocks, it was perhaps inevitable that a FTSE 100 juggernaut like Unilever would be sacrificed by so many in the stampede.
Even so, that sell-off was scary. From mid-February to mid-March, Unilever’s share price fell almost 20%! Despite riding the recovery wave like so many other UK stocks since then, it’s now sunk back to below the 4,000p mark.
I can understand why this must be frustrating for committed ‘buy-and-hold’ investors, particularly those who began buying back in August 2019 when the Unilever share price had climbed to almost 5,200p. So, what’s going on?
Why has Unilever sold off again?
There may be a few reasons. Chief among these is how the company is currently trading. Put simply, Unilever’s recent set of full-year numbers fell short of analysts’ expectations. At a time when many consumer staple stocks are benefiting from multiple lockdowns, the £100bn cap is struggling to increase profits.
Another reason is that Unilever just isn’t a very exciting business. How could it possibly compete with the hype and noise associated with (temporary?) market darlings such as US electric car maker Tesla? To use another example, why would anyone leap at the top-tier giant when there are some UK stocks climbing 200% in just one week?
I get it — Unilever is boring, boring, boring. But that’s why I like it. Moreover, investment decisions should never be made on just a single year’s earnings, at least in my opinion. We need to look at the big picture.
In many ways, Unilever is still the great defensive company it’s always been. Here are a few attractions that jump out at me.
- Consistently high margins and returns on capital
- A truly global player
- A reliable dividend payer
- Manageable levels of net debt
- Strong corporate governance and ‘green’ credentials
- A monster portfolio of brands/products that people repeatedly buy.
The FTSE 100 has some great stocks and some truly awful laggards. Based on the above, Unilever is surely in the former camp.
Of course, no business is perfect. Unilever’s growth rate is admittedly sluggish (although I think the beauty division is destined to bounce back when lockdowns lift). Moreover, not every investor will want to own the shares directly due to their risk tolerance and/or investing horizon.
This being the case, a fund holding a substantial portion of its money in the FTSE 100 giant might be more appropriate. Clearly, there’s no shortage of candidates here. Star stock-picker Nick Train, for example, has 8.8% of his near-£6.5bn LF Lindsell Train UK Equity fund invested in the company. That’s a conviction holding if I ever saw one!
Unilever share price: the bottom line
Unilever’s average price-to-earnings (P/E) ratio over the last five years has been a little under 21. Given that it now trades on just 17 times earnings, I think this stock could prove an absolute steal in time. The time to buy quality is when it goes on sale. This may be the case now with Unilever.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Unilever. 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.