In a trading world where investors seek the latest technology or the newest trend, personal products stocks tend to receive less attention. As an older industry which mostly produces commoditized products, investment interest in this sector tends to revolve around preserving existing wealth or generating dividend income.
Despite the perception, these firms may receive more attention as they innovate on product development or marketing. Also, a growing presence in emerging markets has also bolstered these consumer staples stocks. Although many personal products stocks could bring opportunity, these three appear especially well-positioned to profit investors:
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One can argue that Herbalife (NYSE:HLF) has become better-known for hedge fund interest than what the firm produces. However, with Carl Icahn finally winning on his long bet against short-seller Bill Ackman, traders can evaluate HLF stock on sales and profit growth.
The Cayman Islands-based nutrition company makes products for nutrition, energy, sports and fitness. However, its weight management segment drives more than 50% of its revenue. Though weight management encompasses multiple products, the division centers on its original product, protein shake. This Formula 1 shake is a soy-based product marketed as a “meal replacement.” The company sells its product directly to the public via multi-level marketing.
Unlike most personal products stocks, HLF acts as more of a growth equity. While it does not pay a dividend, it has begun to post improving growth numbers. After stagnating in the middle of the decade, revenues again started to increase in 2018. Revenue growth seems to have returned as Wall Street predicts a 6.1% increase for this year and 6.6% growth in 2020.
As a result, profit increases have returned to double-digit levels, with earnings rising by 10.1% this year. This takes the forward P/E ratio to just under 14.4.
HLF stock can rise, the question is how much? Herbalife currently trades at almost $53 per share. The one point of concern is it appears to have become stuck in a range. Since last August, it has twice pulled back from the low $60s per share level. I think the improving profit outlook can at least take it back to that level. However, it will need to break out of this range to sustain a longer-term upward trend.
Nu Skin Enterprises (NUS)
Nu Skin Enterprises (NYSE:NUS) is a multilevel marketing company who produces and sells both dietary supplements and personal care products. They market under the Nu Skin and Pharmanex brand names.
The Provo, Utah-based firm operates in about 50 markets worldwide. According to the company’s 10-K, they derive about 88% of their revenue from outside the U.S. Its largest market, mainland China, accounts for around 33% of that revenue.
Like most personal products stocks, NUS stock pays a dividend. The current annual payout of $1.48 per share has increased every year since 2001. For new shareholders, it also yields around 2.9%, well above S&P 500 averages.
A falling stock price may explain the relatively high yield. Over the last six months, the equity has lost over 40% of its value. This decline stems from its significant presence in China and investigations. Chinese authorities allege firms such as Nu Skin engaged in the unlawful promotion of health and wellness products. In early January, China instituted a 100-day ban on business meetings.
The uncertainty surrounding this probe has hammered NUS stock. Consequently, investors may have a buying opportunity. NUS stock now trades at a forward P/E ratio of 11.6. Equities forecasted to increase profits by an average of 11.35% per year over the next five years rarely trade at such a low multiple.
The tenuous situation in China adds to the risk of NUS stock. For this reason, it might make sense to wait or to buy only for the dividend. However, I think once the current crackdown ends, investors will hold a low-priced, high-growth stock with a generous payout.
Unilever (UL, UN)
Investors often confuse the stocks of London-based Unilever PLC (NYSE:UL) and Unilever N.V. (NYSE:UN) based in the Netherlands. Despite the legal separation, both are Unilever. It maintains this dual headquarters arrangement and two tickers for a variety of reasons. Still, while UN faces higher dividend taxes, UL and UN remain almost identical for purposes of U.S. traders.
Unilever owns a wide variety of consumer brands including Ben & Jerry’s Ice Cream, Lipton Tea, Dove soap, and Axe skin products. In 2018, it derived about 60% of its revenue from personal products. The remainder came from packaged food-type products. It has undergone cost-cutting initiatives over the last few years and has aggressively moved into emerging markets.
Over the long-term, UL and UN stock have generally risen, though it has stagnated over the last year. As of this writing, UN trades at about $57.50 per share, near its 52-week high. Still, both tickers support a forward P/E of about 20. Also, analysts expect an average 9.3% per year increase in profits over the next five years.
For this reason, most of the benefit of owning UL and UN stock comes from the dividend. Since the company pays in pounds and euro, payouts may fluctuate. However, the stocks currently yield about 3.05%. Dividends also rise annually, at least when measured in the currency of their respective countries.
Unilever may trade at a somewhat higher multiple compared to other personal products stocks. However, with its growing presence in emerging markets, both UN and UL stock can become a profitable growth and income play.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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