All information is correct as at 30 April 2023 unless otherwise stated.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio that you review regularly. Ratios and figures shouldn’t be looked at in isolation.
Coca-Cola
This name needs little introduction. The first glass of Coca-Cola was sold back in 1886 in downtown Atlanta, it’s since become one of the greatest brands on the planet and one of the longest-standing members of the S&P 500.
Resilient performance is a key attraction, with organic revenue growth expected to continue over the coming year despite a cost-of-living crisis.
Brand power shows its true strength in difficult times and Coca-Cola’s ability to pass higher costs to consumers has helped combat pressures from inflation. Though, this is a challenge that’s likely to persist.
We also see the operating model, partnering with local bottling companies and marketing its brands directly to consumers, as a real plus.
That’s allowed it to keep costs down and maintain industry-leading gross margins of close to 60%.
Coca-Cola’s diversification with popular brands like Fanta, Sprite, and Costa Coffee, and the recent addition of BODYARMOR sports drinks, make it a well-diversified player in the beverage industry.
Despite recent acquisitions putting some strain on the balance sheet, Coca-Cola’s strong brand and long history have supported its premium valuation. Of course, there’s no guarantee that will continue.
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Nestlé
Nestlé’s global reach and diverse product range have allowed it to adapt to market changes. We saw this play out with strong sales growth during pandemic conditions and, more recently, with successful price hikes that haven’t cannibalised volumes. Growth might not shoot the lights out, but compounding is a powerful thing, and underlying annual sales growth of at least 2% for over 20 years has been impressive.
Investment in research and development has allowed the group to create new product varieties and formats, keeping the offering fresh. That has encouraged more reliable revenue and profit, which can be paid as dividends or reinvested in future products.
The company has increased its dividend every year for the past 29 years, a testament to its consistent performance. Of course, there’s no guarantee that continues and all dividends are variable and not guaranteed.
Although Nestlé might not be a high-growth stock, it’s been trimming its stake in low-potential brands and investing in higher-growth areas.
We think the company’s steady performance and valuation, which has come down over the past couple of years, could be attractive to some long-term investors. But continued sales growth is key, and inflation’s making that a harder job.
Overseas dividends can be subject to withholding tax which might not be reclaimable.
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RELX
RELX, a leading data solutions provider, operates across four main segments – Risk, Scientific, Technical & Medical (STM), Legal, and Exhibitions. The company provides critical data analytics services to top insurance companies, law firms, and academic institutions.
Services are anti-cyclical, meaning they tend to be essential regardless of how the economy’s doing. Over half of the company’s revenue comes from recurring subscription models, providing stable and predictable cash flows. The company has a large competitive moat due to its proprietary and hard-to-replicate data and its sophisticated analysis that produces valuable customer insights.
One of the things we like about RELX is its strong history of adapting to new trends, with electronic revenue growing from 22% in 2000 to 83% in 2022.
Exceptional cash conversion, mid-single-digit growth in revenue, and low double-digit return on invested capital make for good reading. We see further scope for upside, but many of these strengths are already priced in. The valuation is currently ahead of its long-term average at 22.9 times forward earnings, which adds plenty of pressure to deliver.
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Unless otherwise stated estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments and any income they produce rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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