Why Are Unilever Shares Cheap?

VIDEO: Consumer goods giant has found life tougher this year, but the dividends keep coming

James Gard 8 November, 2021 | 10:23AM
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James Gard: Each week, we look at one stock that is cheap or expensive and why. This week is the turn of Unilever, which has a 4-star rating from Morningstar.

The consumer goods giant makes products like Magnum ice cream and Dove soap. The company has long been a favourite for fund managers like Nick Train who value the company's brands and reliable dividends. Shares in Unilever climbed in the market sell-off last year as investors sought out reliable, defensive companies that paid decent and rising dividends. Its products were used in greater quantities in 2020 as Britains cleaned, baked and ate their way through multiple lockdowns. This year has been much tougher with rising inflation pushing up costs across the board. Its supply chains have also been squeezed.

This year's price slide has pushed the shares into undervalued territory, according to Morningstar analysts. The shares trade below £40 per share but have a fair value of around £43 according to analyst Philip Gorham. Unilever also has a wide economic moat with brand leaders in a number of consumer categories. The company is also well-positioned to benefit from rising incomes and rising economic growth in emerging markets.

For Morningstar, I'm James Gard.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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James Gard  is content editor for Morningstar.co.uk