Clash of the Consumer Goods Titans
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of legendary investor Peter Lynch's favorite bits of advice for individual investors trying to figure out the stock market on their own was to buy what you know. If you've tried a company's product and enjoyed it, that could be a sign to investigate the stock.
The following three companies are all giants in the consumer goods industry, and you've probably encountered at least one product from each of them in the past week. Even if 10-K reports aren't your thing, just by being an American consumer you could know an awful lot about these three companies.
English candles meet Irish soap
What do you get when a brother-in-law duo of an English candle-maker and an Irish soap-maker combine forces in Cincinnati? A $218 billion dollar consumer goods giant named Procter and Gamble (NYSE: PG). That's what. The company is organized into five reportable segments.
Fabric care and home care is the largest in terms of net sales and earnings (32% and 26%, respectively). Blockbuster brands from this segment include Febreeze, Tide, Downy and Duracell.
P&G's second largest segment is beauty. Billion dollar brands from this segment include Head and Shoulders, Pantene, and Olay.
Up next is baby care and family care. Toilet paper and diapers is what this segment is all about.
Fourth is the company's health care segment.
Last, and also least in terms of revenues and profits, is grooming. This segment almost exclusively deals with hair removal. Some names we all know from this segment include Gillette and Braun.
One thing investors are sure to love about this company is its incredible dividend record, one of the best in the entire universe of stocks. P&G has been paying a dividend for 122 consecutive years. It has increased its dividend for 56 consecutive years at a annual growth rate of approximately 9.5%.
Over the past six months, insider sales outnumber insider transactions by a ratio of 10 to 1. While some may see this as a troubling sign, I attribute it more to the fact that the stock market as a whole is overvalued right now. (An excellent discussion expounding on that can be found here.) As the stock market becomes more overvalued, big names like Procter and Gamble are sure to follow suit.
Don't underestimate the Dutch
If you do, you are depriving yourself of countless opportunities, included among them being an investment in Unilever (NYSE: UN).
Unilever manages its brands in four categories. They are:
Personal Care - This segment contains Unilever's hygiene products. Some names you might know from this segment include Dove, Suave, and Axe.
Refreshments - If you love ice cream, then you'll probably love Unilever. It owns Ben and Jerry's, Breyers, Klondike, and the Popsicle brand.
Foods - Unilever owns the most popular condiment in the United States of America, Hellman's mayonnaise. This segment also sells Ragu and Bertolli brand pasta sauces.
Home Care - This segment contains Unilever's household cleaning products.
The crisis in Europe has led the the Euro becoming noticeably weaker against the dollar. The 2008 euro-to-dollar exchange rate was roughly 1.4, and in 2012 that number was approximately 1.24.
For Unilever, a company that proportionately generates most of its revenues in euros, this translates into a relative decline of revenues and profits if denominated in dollar terms.
Can't forget this Swiss powerhouse
I saved the biggest company for last. With a market cap of $236.9 billion dollars, Nestle (NASDAQOTH: NSRGY) is just slightly bigger than Procter and Gamble.
Nestle has seven product segments. For the sake of brevity I'll discuss the top five.
Powdered and Liquid Beverages is Nestle's biggest segment and one of only two segments accounting for over 20% of revenues. Sales from this segment include Nestle brand hot chocolate, and Coffee Mate brand creamer among others.
Milk Products and Ice Cream - the other segment that accounted for over 20% of 2012 revenues. People who love ice cream won't be disappointed with Nestle either, as it owns Dreyer's and the Drumstick brand.
Prepared Dishes and Cooking Aides - Big brands from this segment include Hot Pockets, Lean Cuisine, DiGiorno, and Stouffer's.
Pet Care - Nestle's fifth largest segment includes well known pet food brands, for example Friskies.
There are so many other big name products that Nestle owns, but including them all would've created an enormous list.
Stack em' up side by side
The following chart contains what I believe to be key bits of information on each company:
|Procter and Gamble||Unilever||Nestle|
|Market Cap:||$218.5 B||$121.1 B||$237.3 B|
|Price to Book Ratio:||3.3||6.03||3.18|
|Return on Equity (TTM):||17.51%||30.42%||18.3%|
Data taken from a combination of Fool.com, Reuters, and Yahoo Finance.
In terms of dividend yield and price to earnings ratio, these companies are all somewhat similar. I'm torn on Unilever, however. Its return on equity is the highest by far, but it's trading at such a high level relative to its book value. And it has the lowest dividend.
Final foolish thoughts
These three companies are enormously dominant multinational powerhouses. Personally I'm of the opinion that the long term investor can't really go wrong with any of these three companies. While I don't see any of them providing amazing gains, all three seem practically perfect for a dollar-cost averaging program.
For the more passive investor, I don't see anything wrong at all with putting a set amount of money each month into one of these three companies. If you invest the dividends and keep the program going for a decade or two, your wealth ought to compound at an acceptable rate.
The returns you receive most likely won't be jaw-dropping, but you will have handily beaten a savings account. Not a bad result, considering it entails practically no effort.
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Fool blogger Ryan Palmer has no positions in any of the stocks mentioned. The Motley Fool recommends Procter and Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!