LONDON — Thinking about it for a minute, it is rare for me to buy any item that is not a brand. This does not mean that I am hugely materialistic or a “brand snob,” but I do seem to gravitate toward brands rather than buy supermarket own-brands or whatever else.
For instance, I buy Persil detergent, drink PG Tips tea, and (weather permitting) enjoy a Magnum ice cream, all of which are brands owned by Unilever plc (ADR) (NYSE:UL).
Either I am the marketing department’s dream customer and have been successfully brainwashed into thinking that brands are better. Or I am seemingly among the majority of consumers who favor the reliability, quality, and consistency that brands offer.
Certainly, I and many other consumers could save money through buying Tesco Corporation (USA) (NASDAQ:TESO) everyday-value products or Asda smart-price goods. Indeed, this would be entirely logical and, although I may notice a difference vs. the brand at first, I’m sure this would quickly wear off.
The thing is, though, I don’t switch to non-branded products. And neither do a vast number of consumers across the developed world.
Indeed, the same is true outside of the U.K. and the developed world. More than half of Unilever plc (ADR) (NYSE:UL)’s sales are derived from emerging markets, where Unilever’s sales agents are ensuring the company’s products are on full display in local shops as well as vast shopping malls.
So, while the consumer backdrop in the developed world may be stuttering, the growth in emerging markets is being tapped into by Unilever plc (ADR) (NYSE:UL). Such exposure is not only beneficial for the present, but bodes extremely well for the future, with brand loyalty being gradually built up in emerging markets, ensuring the long-term success of the company.
Such rapid development means that earnings per share (EPS) are forecast to grow at an annual rate of 10.5% during the next two years. However, some of that growth seems to be priced into the shares, since the company’s P/E ratio is higher than that of its sector at just under 20 (historic) vs. 16.5.
Meanwhile, a yield of 3.2% is below the FTSE 100 average, although the growth of dividends per share should at least match EPS growth in future years.
Of course, just like any leading brand: You get what you pay for. Unilever plc (ADR) (NYSE:UL)’s shares may not be cheap, but in my view they are well worth the money. They are a brand, after all.
The article I Love Brands, I Love Investing in Unilever originally appeared on Fool.com and is written by Peter Stephens.
Peter Stephens owns shares of Tesco. The Motley Fool recommends and owns shares of Tesco.
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