Consumer-goods companies like Unilever (LSE: UU)(NYSE: UL.US) and Reckitt Benckiser (LSE: RR)(NASDAQOTH: RBGLY.US) are popular safety stocks when other investments are starting to look a bit risky, but one downside of that is they can quickly get quite scarily priced by usual metrics.
Look at Unilever, whose shares have soared 14% since early January to 2,939p. That takes in a 52-week high on 28 January of 2,993p, and provides shareholders with a 21% gain over the past 12 months.
But look at the valuation it has left the shares on now based on forecasts for the year ending December 2015, were looking at a P/E pf 21.6, which is about 50% ahead of the FTSE 100s long-term average of around 14. And for that, youre only likely to get a decidedly average dividend yield of a bit over 3%.
Safe but pricey
Sure, Unilever produces a range of goods that are not going out of fashion, including Sunsilk, Dove, Flora and Hellmanns all brands with sales of more than 1bn a year. So its safe and not going to go bust any time soon, but a 50% premium over the FTSE 100 looks too steep to me.
Things are similar at Reckitt Benckiser, which has such staples as Dettol, Lemsip, Air Wick and Scholl under its umbrella. Again, theyre brands that are not going to disappear from supermarket shelves, but again the market might be paying too much for the safety of the shares.
In this case, we see a forward P/E for December 2015 of 23, even higher than Unilevers. AndReckitt Benckisers predicted dividend yield, at 2.3%, is significantly below both Unilever and the FTSE average.
Reckitt Benckiser shares have done even better than Unilevers over the past 12 months, with a 26% gain to todays 5,675p and the 5,690p price they briefly touched on today is another 52-week high.
The slump in the price of oil, which has been stuck below $50 a barrel for a couple of weeks and doesnt look like picking up for a long time yet, is surely at least part of the reason for the current flight to safety. But arent there better bargains out there?
I reckon the utilities companies are looking better value these days, as lower wholesale energy prices are helping take a lot of pressure off their profit margins. At 291p, for example, Centrica shares can he had on a relatively modest 2015 forward P/E of 14 and at the same time, the pundits are expecting dividend yields of more than 6%!
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