These consumer conglomerates, which will be hit hard during the pandemic, are the ideal choice for old investment aptitudes. Please purchase the one you are actually using. Certainly, if you didn’t trip over either Unilever (LON:ULVR) or Diageo (LON:DGE) products, you’ll probably lead a rather protected presence.
Using his own Warrenbuffet philosophy of buying to “exceptional companies” such as Berkshire Hathaway, questionable, long-term investors do little better than stuffing money into a company that produces highly popular products. But the question you need to ask is which of these is best?
Two companies, hundreds of brands
The first area of comparison is the brands in the sector they operate in, and predictions about what these areas will look like.
On the one hand, Unilever owns brands across homecare, beauty products and foods and bedrooms, including: Ben and Jerry’s, Knorr, Dove, Bovril, Carte D’Or, Alberto Balsam, Colman’s, Domestos, Lipton, Cif, Hellman’s, Lynx/Axe, Comfort, Persil, Matey, Magnum, Toni & Guy, Sure, Surf, Pure Leaf, Cornetto, Marmite, Radox, Simple, Solero, Tresemme, Vo5, Vaseline, Wall’s, Vienetta, PG Tips, Pot noodles (etc.).
In fact, they produce most of the products on your corner shop shelves. Sales are ahead of the target in 2020, but uncertainty continues to compare and consider the company’s stock price. However, tight wallets can affect the scope of your essential consumables, but many Unilever products in beauty and home care are considered shopping basket staples, so even the worst case scenario of covid risk, they may not be too hampered.
On the other hand, there is a special Diageo of alcoholic beverages. It owns brands such as Black and White, Johnnie Walker, J&B, LaGavlin, Singleton, Talisker, and Crown Royal Whiskey. Ciroc, Ketel One, Smirnoff Vodkas. Bundaberg, Captain Morgan and Lonza Capparams. Gordon and Tan Curry Gin. So are prolific names like Don Giulio Tequila, Bailey’s Liqueur, and Guinness Beer.
With hospitality outlets around the world closed internationally, during 2020, Out and Abe’s alcoholic beverage sales were absolutely sought. Following the recent decline in stock prices, we may conclude that COVID risk factors are likely to win until the vaccine is deployed effectively. Meanwhile, stocks were gathering in early November, and you might imagine that Diageo’s outlook could be promising, given it being one of the worst sectors due to the virus and demand for social and holiday demand. Certainly, the hope of normality coming back aside – Christmas is upon us. And we need to consider how much holiday liquor demand is already priced by the market.
Which offers better value?
The second comparison should be about the price, value, and income potential of each company.
From a stock price point of view, the companies have been moving widely upward since the start of the initial Covid lockdown, both fell slightly on Monday, with Unilever falling 1.68%, and Diageo falling to 0.91%, 4,381p and 2,920p respectively.
Analysts have a consensus “hold” stance on Unilever stock, with six purchases, two holds and three sales stances. Similarly, the company has a consensus target price of 4,819.55p (a potential increase of around 10%), with a low of 5,411p from Goldman Sachs analysts and a low of 3,814p courtesy of HSBC.
Meanwhile, analysts also have a “hold” stance on Diageo stock, with 10 buys, 6 holds and 2 selling stances. The consensus target price is 2,969p, an approximate 1.7% increase from current levels, and a September projection of 2,800p UBS in contrast to Goldman Sachs’ November target 3,200p target forecast.
Because of its superiority, Diageo received a 56.64% “outperform” forecast from the MarketBeat community. However, each company has appeared in seven research reports over the past three months – suggesting high interest in both, while Unilever insiders have not sold their shares in the company in the past 90 days, Diageo Insiders have sold 1,153% more shares in the company than they bought.
This bounced around 530p following Diageo’s recent stock price rise. And while selling stocks to capitalize the boom isn’t inherently negative, insiders suggest that they have found that they deserve short-term maximization than the short-term to medium-term company price outlook. Meanwhile, the lowest since the beginning of the month, Unilever stock has been described as a bargain in many forums.
In terms of value, Unilever is better than Diageo. The P/E ratio of 17.44 is still above the consumer’s defense average of 11.49, but well below Diageo’s 48.99 score.
The story is roughly the same in terms of income. Unilever boasts a dividend yield of 3.42% and a payment rate of 59.27%. This rate, below 75%, is at a healthy and sustainable level. In contrast, Diageo’s dividend yield is 2.40%. Although not tattered, the 116.86% payment ratio is not ideal. This is because it can be too expensive to be sustainable and rely on.
Heart for future generations
The natural final consideration when considering long-term retention is future strategy and product considerations. The reality is that both companies are excellent at innovation, both feature extremely trendy brands that take advantage of consumer whims and cultural events.
For example, Unilever’s Ben & Jerry’s creates new flavors to leverage modern ratios (such as Netflix and Chill’d) and performs vocal advocacy on issues such as climate change, BLM, and the immigration/refugee crisis (not interchangeable, they simply depend on the audience). Diageo, on the other hand, is hardly lazy. Johnnie Walker launched “White Walker” to mark the Game of Thrones finale, adapting new gin flavors, Bailey, a fruit-based kutel variety to consumer taste trends.
In terms of commitment to sustainability, the companies have set clear goals and Diageo has pledged to be carbon neutral by 2030, but Unilever has been reporting on the sustainability initiative for some time, with its target of $1.2 billion in plant-based sales by 2025.
Perhaps the more ambitious you are in terms of sustainability goals, the more positive Unilever’s push for greener mass production is overall. However, it alienates those who view this type of obvious messaging as against their own view.
Of both companies, I support Unilever. That recovery may not be as dramatic as Diajo saw a few weeks ago (and may still be seen), but the current entry point is comfortable and is a place we expect to travel over the next few years. Similarly, it is not overvalued, paying a larger dividend and appears to be more critical in its green transition.
For full disclosure, the authors have a holding in Unilever, but this was only after they began conducting research on various consumer defense stocks.
