When it comes to consumable goods such as booze, soap and food, customers tend to keep coming back for more after using the product up. If a firm can create products that appeal to customers, brand-loyalty can keep the cash taps flowing.
That simple concept is what makes consumer goods firms so attractive to investors like us. Consistent cash flows allow firms such as SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US), PZ Cussons (LSE: PZC) and Unilever (LSE: ULVR) (NYSE: UL.US) to keep paying dividends, which makes such investments some of the most defensive available on the London stock market.
Defensive and growing
If these steady companies can produce growth in earnings too, which these three seem set to do, we could be on to something attractive for 2015 and beyond. City analysts following these three companies expect all to deliver on forward earnings:
|
Company |
Year to |
Forecast earnings growth |
|
SABMiller |
March 2016 |
9% |
|
PZ Cussons |
May 2016 |
10% |
|
Unilever |
December 2015 |
7% |
SABMiller describes itself as the worlds second largest brewing company and one of the largest bottlers of Coca-Cola drinks. In November, the firm said it anticipates challenging trading conditions ahead. Nevertheless, the company is confident it will grow volume and profits.
PZ Cussons reckons it manufactures and distributes some of the most familiar household brands in the world, such as Imperial Leather, Cussons Baby, Morning Fresh and St. Tropez. In December, the firm said it is keeping costs under control and aiming to maximise operational efficiency, which will contribute towards offsetting continuing macro challenges, particularly in Nigeria.
Unilever is one of the worlds leading suppliers of fast-moving consumer goods and the house for names such as Lipton, Walls, Knorr, Hellmans, Omo, Ben & Jerrys, Ponds, Lux, Cif, Sunsilk, Sunlight, Flora, Bertolli, Domestos, Comfort, Radox and Surf. In October, the firm said it is confident that 2014 will prove to be another year of profitable volume growth, margin improvement and strong cash flow. The directors reckon trade de-stocking in China will complete by year-end, suggesting fewer headwinds for 2015.
Good times ahead?
2014 proved challenging for all three firms but they seem poised for further growth during 2015 and beyond. Looking at the share price charts of each company reveals a happy story of capital gains for investors keeping the faith. Those charts are impressive, suggesting that consumer companies potentially offer some of the best defensive and growth propositions available on the stock market today.
Consumer-brand driven cash flow has always come through in the past and seems like a good bet for the future as well. Firms with rock-solid repeat-purchase credentials never seem to display a cheap-looking valuation, so buying share-price weakness seems a good strategy. On that basis, I think SABMiller, PZ Cussons and Unilever are attractive and look set to deliver during 2015 and beyond.
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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK owns shares of PZ Cussons and Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
