Shares in FTSE giant Unilever (LSE: ULVR) have done really well. Over the last three months, they’ve risen about 20%.
Would it be crazy to buy more shares for my portfolio after this double-digit gain? I don’t think so. Here are three reasons why.
Unilever’s traded higher before
While Unilever shares are currently near 52-week highs, they’ve traded at much higher levels before. Back in September 2019, for example, the shares were changing hands for around 5,250p. That’s about 17% higher than the current share price.
Now, Unilever’s revenues have climbed substantially since then. For 2019, revenue came in at €52bn. This year, analysts expect €61bn.
This leads me to believe there’s potential for further gains here.
Profits could be set to jump
Another reason I’m bullish on Unilever is that the company has a new management team in place and is really focused on efficiency. For instance, a recent report claimed that the company is set to cut a third of office jobs in Europe.
This focus on efficiency shouldn’t be ignored. For a start, it could lead to much higher profits, especially when combined with lower costs (due to the fact inflation’s falling).
Secondly, a focus on efficiency can lead to a huge change in sentiment towards a stock. For example, when Meta Platforms and Amazon launched efficiency drives, their share prices exploded.
The dividend yield’s attractive
Finally, I think Unilever’s rock-solid dividend (which currently offers a yield of about 3.4%) could come back into focus now that interest rates are likely to fall.
When rates were low, Consumer Staples stocks with attractive dividends did really well. Investors saw them as ‘bond proxies’.
However, in recent years, these stocks have lost some of their appeal as investors have been able to obtain high yields from bonds.
Now that rates are likely to come down, I wouldn’t be surprised to see capital flow back into Unilever and other Consumer Staples stocks for their growing dividends (pushing share prices across the sector higher).
Potential for attractive returns
Now, there are risks with Unilever shares, of course. After the recent jump in the share price, the valuation here’s quite high. Currently, the forward-looking P/E ratio‘s 19, falling to 18 using next year’s earnings forecast.
These multiples don’t leave a lot of room for error. If near-term sales or earnings were to come in below forecasts (due to consumers switching to cheaper brands, for example), the share price uptrend here could come to an abrupt halt.
Overall though, I think the shares have appeal. I’m seriously tempted to buy more.
It’s worth noting that analysts at JP Morgan recently put a price target of 5,100p on the shares. If that target was to come to fruition over the next 12 months, I could be looking at total returns of around 17% when dividends are factored in.
This post was originally published on Motley Fool
