Picking stocks can be a tough business and most investors just dont have the time to do the research required.
However, you cant go wrong with Unilever (LSE: ULVR) and Santander (LSE: BNC). These two large caps have all the qualities of great companies, and they own a number ofglobally recognised brands.
Whats more, due to their size, diversification and strong balance sheets, neither company is going to go out of business any time soon reducing the risk for investors.
Buy and hold
Unilever is one of the best companies listed in London today. The group produces over 400 brands of products, 13 of which have sales in excess of a billion euros per annum.
These products are sold around the world and used by two billion people every day. The company isnt dependent upon any one single market.
As a result, Unilever has been able to grow net income at a steady rate of 3.6% per annum on average for the past decade.
Now, this growth rate is nothing to get excited about. However, one of the key principles of investing is to reduce the risk of permanent capital loss. In other words, you need to be sure that the stocks you buy, wont go to zero.
And with Unilevers strong international presence, theres almost no risk of the company going out of business anytime soon.
Cash rich
As Unilevers sales have grown steadily over the past decade, so has the companys cash generation. In particular, Unilever has generated, on average, 5bn per annum in free cash flow during the past decade.
Around 85% of net income is being converted into free cash flow every year. Few companies can boast level of cash generation.
A large chunk of this cash is returned to investors, but not all of it. Of the 30bn in cash generated from operations over the past five years, only 14bn, or around 45% has been returned to investors. The rest has been reinvested back into the business to boost growth.
Unilever currently supports a dividend yield of 3%, and the payout is covered twice by earnings per share, leaving plenty of room growth.
Emerging market growth
Unilever is a cash rich company that looks after its shareholders making it the perfect income play. On the other hand, Santander is a growth play.
After a management overhaul earlier this year, the bank is now firmly on a growth footing. The bank is looking to boostits lending to customers, grow its wealth management arm, and increase the number of depositors using its service.
Specifically, Santander wants to increase the number of loans it makes to customers by around 35bn per year. Further, management is looking to increase the number of retail customers that do the majority of their banking with Santander by 40% over the next three years. Its believed that this initiative alone couldgenerate2bn to 3bn of additional income for Santander.
Rapid growth, low risk
City analysts believe that managements growth drive will help Santanders earnings per share expandby 12% during 2015 and 2016. Not bad for a company thats currently trading at a forward P/E of 12.7.
But what about risk? Well, Santander was one of the few global banks not to receive a bail-out during the financial crisis and ever since, the group has been working to strengthen its capital position. Now, Santander, is one of the best-capitalised banks out there.
Strong management
Santanders growth is being driven by a strong management team.
In many cases, investors underestimate the importance of a strong management team. But here at the Motley Fool we love championing CEOs and investors who go against the grain of the City institutions and fund managers.
We’re always on the lookoutfor the market’s best hiddengems and business visionaries.
To that end, our team of top analysts has put together thisFREEreport,“3 Hidden Factors Behind This Daring E-commerce Play“.
This issomethingyou do not want to miss, and we’re offering you the chance to find out more for free right now — justclick here.
Rupert Hargreaves has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Rupert Hargreaves has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.