Is Unilever plc A Better Buy Than Diageo plc And SABMiller plc?

Should you buy a slice of Unilever plc (LON: ULVR), or are Diageo plc (LON: DGE) and SABMiller plc (LON: SAB) more appealing right now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The last six months have been rather disappointing for global consumer goods stocks such as Unilever (LSE: ULVR) (NYSE: UL.US), Diageo (LSE: DGE) (NYSE: DEO.US) and SABMiller (LSE: SAB). That’s because the share prices of all three companies have fallen during the period, with Unilever’s fall of 3% being only slightly better than Diageo and SABMiller’s declines of 6% and 5% respectively.

Looking ahead, though, will Unilever continue to outperform Diageo and SABMiller? And, perhaps more importantly, is it the best buy of the three stocks?

Valuations

While the FTSE 100 is not exactly dirt cheap at the present time, with it having a price to earnings (P/E) ratio of 14.8, it is still cheaper than Unilever, Diageo and SABMiller. They currently trade at significant premiums to the wider index as a result of their relative stability, diversification and strong long term growth potential.

Should you invest £1,000 in Diageo right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?

See the 6 stocks

However, of the three, Unilever seems to offer the best value for money. That’s because it has the lowest P/E ratio, with it currently trading on a rating of 18.8. This compares favourably to both Diageo and SABMiller, which have P/E ratios of 19 and 20.7 respectively. This shows that Unilever could see its valuation expand relative to Diageo and SABMiller during the course of 2015, which would be good news for shareholders in the company.

Growth Prospects

Clearly, all three companies have excellent long term growth potential. They have a wide variety of brands and are exposed to the fastest growing markets in the world, which bodes well for their long term profitability. Looking a little nearer term, though, Unilever seems to offer the most appealing growth prospects in the current year and next year, with it being forecast to increase its bottom line by 7% and 8% respectively.

In the case of Diageo, its net profit is due to remain at the same level as last year, with growth of 8% being pencilled in for next year. It’s a similar story for SABMiller, with its bottom line forecast to fall by 1% this year, followed by growth of 9% next year.

Looking Ahead

While many investors may feel that growth of 7% and 8% over the next two years is not particularly enticing – especially when it trades on such a high valuation, Unilever remains a hugely attractive company. It continues to deliver reliable earnings growth, has considerable long-term potential from its vast exposure to emerging markets and also offers a yield of 3.7% that is forecast to grow by 5.5% next year.

As with its valuation and growth prospects, it beats Diageo and SABMiller when it comes to income potential, with them having yields of 3% and 2.2% respectively. As a result of this, and while Diageo and SABMiller remain attractive investment opportunities in the long run, Unilever seems to offer the most appealing investment case at the present time.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of 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.

More on Investing Articles

Array of piggy banks in saturated colours on high colour contrast background
Growth Shares

Here’s what analysts expect for the Tesco share price in the coming year

Jon Smith runs through the outlook for the Tesco share price using both his own opinion (and research) and that…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

This ex-penny stock jumped 16% today! Should I buy it for my ISA?

Our writer revisits a small-cap UK stock that he passed up on last year for his Stocks and Shares ISA.…

Read more »

Two female adult friends walking through the city streets at Christmas. They are talking and smiling as they do some Christmas shopping.
Investing Articles

How much do you need in an ISA to target a £2,500 monthly income?

Harvey Jones thinks FTSE 100 shares are a brilliant way to generate a long-term second income stream, and names a…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

These ‘boring’ FTSE 100 dividend stocks just hit 52-week highs!

Who needs to be part of the AI-frenzy when certain dividend stocks are making an absolute packet for more conservative…

Read more »

Businesswoman calculating finances in an office
Investing Articles

This FTSE 100 stock is forecast to beat Rolls-Royce in the coming year — and it’s only £1!

Rolls-Royce has been the FTSE 100 star of 2025, but analysts think this £1 homebuilder could deliver over three times…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Growth Shares

Down 86% over five years, this FTSE stock could be nearing the bottom

Jon Smith points out a FTSE share that has been beaten up in recent years but could start to show…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

This is nuts. When’s the stock-market crash?

Share prices keep hitting record highs in 2025. The bad news for investors is that asset prices look inflated, which…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

AI wars: is the Nvidia share price under threat from rival AMD?

Up 56% in a year, the Nvidia share price looks unstoppable. But a new AI chip from rival AMD threatens…

Read more »