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Life happens in cycles, and that is certainly the case with FTSE 100 stocks. Winners become losers and vice versa. Consumer goods giant Unilever (LSE: ULVR) is a great example.
For years, Unilever's share price only seemed to go up and up, making fortunes for investors. I looked at him fascinated and frustrated. I prefer to buy stocks when they are down rather than up, as this gives me a cheaper entry price and reduces the risk of price declines. Unilever never gave me that opportunity.
It always seemed to be going up and was routinely expensive, trading at around 24 times earnings. The yield barely touched 2%. So I decided to sit and wait. Suddenly, instead of going well, everything started going wrong for Unilever.
Stock Values Can Be Cyclical
The fall took me by surprise. Unilever has more than one billion customers in more than 200 countries. It sells essential items that people need to buy, protecting their income from the vagaries of fashion and offering some protection in a crisis.
Whether it's Cif, Colman's, Domestos, Paloma, Marmite, Surf either Vaseline, Most of us have at least one Unilever product in our homes, and usually many more. However, the company began to attract the attention of activist investors, who thought it was too big, too sprawling, too unfocused, and following the wrong strategy in raising social responsibility.
Add to that the cost of living crisis and Unilever was on the hook. Suddenly, their stock price was falling and they were cheap. Even the performance was starting to look appealing.
He had already waited long enough. So on June 7 last year I bought Unilever shares at a valuation of around 17 times earnings, with a yield of 3.75%. I applauded myself for being patient and getting a bargain. I didn't feel so smart when my stock immediately dropped 10%, leaving me in the red.
Which is where I stayed. Until the last month, when Unilever shares suddenly rose 7.97%. The group delighted investors with a positive first quarter, with all five business divisions generating underlying sales growth.
stocks on the rise
My share is now in the black, only worth 2.87% more than what I paid. Plus, I received my first dividend. The share price is still down 5.62% in one year and 9.02% in five. Which is a pretty poor return, given that the FTSE 100 is up 5.59% and 14.02% respectively over the same periods.
Shares remain relatively cheap by previous standards, trading at 18.76 times earnings. The 3.54% yield isn't bad either.
CEO Hein Schumacher continues with his “commitment to do fewer things, better and with greater impact”. However, I don't expect Unilever to suddenly become a huge success. Underlying sales growth should be a modest 3% to 5% this year. Investors remain wary. It is understandable that this is so.
The board is struggling to drum up buyer interest in its ice cream business, which includes Magnum, wall and Ben & Jerry's, which he hoped to sell for £15bn. Another concern is that the global cost of living crisis will drag on and shoppers will stick to cheaper brands.
In short, I believe that Unilever has started on the road to recovery and it is not too late to get on it. I'm thinking about buying more before it goes up any more.
