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Cheap shares: This quality stock has missed the FTSE 100’s 15% rally. I’d buy it today!

Cliff D'Arcy
·3-min read
A bull outlined against a field
A bull outlined against a field

What a month it’s been for UK shareholders, with stocks surging pretty much across the board. The FTSE 100 has soared during November, setting this up to be a record month for the index. As I write, the Footsie hovers just below 6,415 points, up a whopping 840 points (15%) since Halloween.

That’s the sort of gain I’d expect over two years or so, not a single month — and it’s been driven by good news coming from the US election and Covid-19 vaccine producers. Nevertheless, it’s been a grim year for the FTSE 100, with the index slumping 15% in 2020.What’s more, this recent rally hasn’t lifted all shares. Here’s another of my favourite stocks that has been pushed into ‘cheap shares’ territory.

Unilever is a global giant

Yesterday, I wrote about Reckitt Benckiser, a quality British business whose cheap shares have fallen by a fifth (20%) since their late-July high. Today, it’s the turn of another FTSE 100 heavyweight, RB’s biggest UK rival Unilever (LSE: ULVR). RB is a £47.9bn giant, but Unilever is an absolute beast in comparison, with a market value of £114.5bn. Indeed, Unilever’s rise in 2020 has catapulted it to become the biggest member of the FTSE 100 by market value.

Like RB and Royal Dutch Shell, Unilever is a highly successful Anglo-Dutch company. Currently, Unilever has dual headquarters in London and Amsterdam, but is planning to relocate solely to London later this year. Like RB, Unilever is a global leader in selling FMCG (fast-moving consumer goods) — the brands we all know and buy. Unilever’s product cupboard is second to none, containing over 400 brands, including Domestos bleach, Dove soap and body washes, Hellmann’s mayo, Knorr soups and stock cubes, Lipton tea, Lynx and Sure deodorants, Magnum and Ben & Jerry’s ice creams, and Persil laundry detergent. In short, look in your kitchen or bathroom shelves and you’re sure to find Unilever products. But I suspect its stock has been thrown into the ‘cheap shares’ bargain bin.

Cheap shares: This quality stock missed the November rally

As recently as 14 October, Unilever shares were riding high, hitting at a 52-week closing peak of 4,892p. That’s a far cry from when they plunged as low as 3,726p on 16 March, during the Covid-19 spring meltdown. As I write, Unilever’s share price stands at 4,367p, down 525p (10.8%) in less than six weeks. I find it hard to understand why Unilever stock would drop by over a fiver in 40 days, especially given the excellent 2020 the group has had. It makes me think that — in relative terms — that these are cheap shares today.

Of course, because Unilever is such a terrific business, its shares are never cheap, as such. At today’s price of 4,367p, they trade on a price-to-earnings ratio of 19.3 and an earnings yield of 5.2%. Trust me, these fundamentals are cheap for Unilever’s quality. Likewise, its dividend yield of 3.6% a year beats the FTSE 100’s 3.2% and, again, is attractive for Unilever. Since 1982, Unilever has never cut its dividend, which has risen by an average of 8% a year. Therefore, I would absolutely buy Unilever’s cheap shares today, ideally inside an ISA, to enjoy a lifetime of rising, tax-free dividends and future capital gains!

The post Cheap shares: This quality stock has missed the FTSE 100’s 15% rally. I’d buy it today! appeared first on The Motley Fool UK.

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Cliffdarcy has no position in any of the shares mentioned. 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.

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