Unilever: 'Small & Mighty' - and Recession Proof

| About: Unilever NV (UN)

With the constant back-and-forth regarding whether or not the US enters a recession, it makes sense to at least consider hedging options other than cash and bonds. I'm inclined to consider large conglomerates with respectable earnings growth, broad product reach, pricing power, and significant international exposure. I give extra weight to companies that fit these requirements and are located abroad.

For example, TV's talking heads have begun heavily touting companies including Colgate-Palmolive (NYSE:CL) and Proctor & Gamble (NYSE:PG). To be sure, these are both diversified companies, with solid growth prospects and a massive range of products ranging from toothpaste to floor cleaners. But both are also somewhat expensive on a price-to-earnings basis, with CL trading at 25.22 (21.07 forward) and PG sporting 23.30 (18.83 forward). In fact, the sector's current P/E is 20.58, which is in line with the S&P's ~20.7.

Still, the food and domestic product manufacturer juggernaut known for Breyer's ice cream, Pond's skin care products, and Snuggle fabric softener, among myriad others, is worth your review: Unilever (NYSE:UN). Banking on the company's ability to maintain pricing power on products including its "Small & Mighty" ALL laundry detergent, we first invested when UN was beneath $30/share. But we bought again before the last earnings announcement, and plan to buy again on any retracement.

Trading at a P/E of 18.84, it's less expensive than PG and, according to the most recent conference call, shows a maintenance of strong pricing control in many areas of its business save ice cream (the craving for which was somewhat hampered by early foul weather in Europe in the fall). Latin American an Asian growth look especially healthy, as does expansion into Eastern Europe. The other metrics are quite good, as well, with ROA of 9.26%, ROE of 34.73, and ROTC of 19.52%. Quarterly revenue growth YOY is up, at 1.2%, even if it isn't as robust as PG's (at 7.5%) or CL's (at 12.2%).

Unilever might not be your first pick. Perhaps you're more interested in capitalizing on people's smoking habits, cable-TV watching, or alcohol imbibing rather than their need for Ben & Jerry's. But this doesn't mean that Unilever doesn't boast formidable international exposure (with many region's checkout currency decidedly not dollar-denominated), a diversified product array, and excellent growth prospects that might help mitigate downside in your portfolio. With current year earnings estimates of $1.91/share, UN could easily trade to a P/E of ~20.5, which would suggest a well-valued position (of around $39.6/share). Next year, I'm looking for $2.04/share. And UN will pay you 2.6% while you wait for steady price appreciation.

Invest soundly.


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Disclosure: The author is long Unilever.