If you’re investing in stocks and shares, it’s important to have a list of criteria that a company has to fulfil before you buy a portion of it.
You shouldn’t compromise on your investing principles. If a corporation doesn’t tick one of your boxes, move on to something else. Even when a business seems incredible, has no debt, a great product and is well established, if something still doesn’t add up, remember that you’re not obliged to buy its shares. Even if all the market commentators have recommended it.
Look at Warren Buffett’s investing style. In the most simple form, he looks for businesses that are trading at a price below intrinsic value and with a competitive advantage over rivals. His company, Berkshire Hathaway, is sitting on piles of cash and is waiting for a great buying opportunity.
So which of my investing boxes does Unilever (LSE: ULVR) tick?
Without realising it, you probably have half a dozen Unilever items in your cupboard.
The business owns brands such as Marmite, Dove, Hellman’s, Sure, Ben & Jerry’s and Vaseline. All of these products are household names and are spread across different product lines, making disruption from competitors very difficult.
With a company like Unilever, the portfolio of brands has to be built into its intrinsic value calculation. With this reasoning, that’s why I can see past Unilever’s stock price, even though it is trading at a price-to-earnings ratio of 21.
The company’s brands are sold around the world, and Unilever’s geographic diversity also appeals to me.
In addition to this, the business has great brand awareness. For example, something which is divisive and stirs up strong emotions is often described as Marmite. There aren’t many brands that have this level of public awareness.
Low price point
Another attractive element of Unilever is the low price point of its products. I believe that during a recession, customers will generally stick with Unilever items rather than switching to supermarket own-brand alternatives for a few pence less.
At this level, the purchases will often be based on customer impulse. It’s doubtful that many customers will agonise between a supermarket own-brand yeast extract or Marmite, for example.
If given the task to compete against Unilever — and an extremely large bundle of cash — would you know where to start? I wouldn’t.
With products spread across almost every supermarket shelf, it would be a big ask to usurp even one of Unilever’s brands, let alone the whole company.
To an extent, we can see that the supermarkets have tried to take a slice of Unilever’s market share with own-brand products. I’m doubtful that it has had much of an impact.
Across many of its product lines, Unilever remains the dominant player. I think that will continue to be the case
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T Sligo has no position in any of the shares mentioned. The Motley Fool UK owns shares of and 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.
Motley Fool UK 2019