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When you get started, the stock market can seem incredibly confusing. Most of the time, it's hard to know where to start.
When I started investing, I didn't have much of an idea what I was doing. I invested in companies without doing due diligence. Unfortunately, this meant that some of my previous investments caused me to lose money.
However, over time, as I learned more about the stock market, I found the strategy that best suits me. I now focus on buying high quality businesses, predominantly in the FTSE 100 and FTSE 250, which I believe will be able to provide me with healthy benefits for years and decades. I also target companies where I clearly understand the business model and how revenue is generated.
If I were starting over, here's a stock I would consider buying if I had some cash to invest.
Unilever
The business in question is Unilever (LSE: ULVR). The stock has had a bright start to the year, rising 11.7%. That means it has outperformed the FTSE 100, which is up 6.7%.
When I think about investing in a company, there are a few things I go straight for. First of all, how cheap are its shares? Unilever trades at 19.6 times earnings. Compared to the Footsie average of 11, that may seem expensive.
However, that's below Unilever's historical average of 25. That means there could be value in its share price today.
Secondly, does it pay dividends? Dividends are a form of profit sharing that companies use to reward shareholders. Unilever has a yield of 3.5%.
That's nowhere near the highest level available on the FTSE 100. Vodafone takes that crown with a 10.2% yield. However, there is a reason why I prefer Unilever's dividend to those of companies like Vodafone.
It's because the company hasn't cut its payments in more than 50 years. Dividends are never guaranteed. A company can reduce or cut your payment entirely without notice. We saw this during the pandemic.
Therefore, a track record like that gives me confidence that the company has placed an emphasis on rewarding shareholders and will continue to do so in the future.
The risks
Investing comes with risks and, with Unilever, I see some challenges.
The most important is the fact that it faces stiff competition from budget retailers such as Aldi. Unilever sells premium products that often cost a premium.
As such, as many people struggle during the cost of living crisis, they may switch to more affordable alternatives. Aldi has been aggressively gaining more market share in recent years, which may be evidence of this.
Pricing Power
That said, I still like the current look of Unilever stock. While it faces competition, it has recently shown that it has serious pricing power.
Last year, although its prices increased by 6.8%, underlying sales grew by 7%. That highlights that demand for their products is strong.
As such, Barclays He recently raised his price target on the stock to 5,200p from 5,000p. That represents a 21.5% premium over its current price.
