Yahoo Finance Profiting from Familiar Brands and Products: Simple Steps to Increase Your Wealth
Successful investing should not involve investments in hard-to-understand or obscure industries.
You can be a successful investor just by investing in the most mundane products in our daily lives.
Consider the approach of Larry Page, former CEO of Alphabet (NASDAQ: GOOGL), previously known as Google, who employed what he called the “Toothbrush Test”.
Page will only look at a potential company to acquire if it has a product or service that he will use daily.
During his tenure as Alphabet’s CEO, some of the company’s key acquisitions included Waze and Nest Labs.
Waze is a navigation application that delivers real-time traffic conditions to its users and Nest Labs, a manufacturer of smart home devices, has been rebranded as Google Nest following its acquisition.
Waze allowed Alphabet to improve its mapping services while the purchase of Nest Labs was a strategic move to expand its reach in smart household devices.
Investors can learn from Larry Page by investing in companies that produce products and services they use daily.
These businesses often fall within the “Consumer Staples” sector.
Another benefit of these companies is their defensive nature, which allows them to provide stable returns and dividends even in a weak economic environment.
The main reason for their stability is that these companies often enjoy consistent demand for their goods and services, regardless of the economic climate.
Here are several companies that own brands that you are familiar with.
Kenvue (NYSE: KVUE)
Originally part of Johnson & Johnson (NYSE: JNJ), Kenvue was spun off and went public in May 2023.
Kenvue is the world’s largest consumer health company by revenue and holds a unique position at the intersection of healthcare and consumer goods.
The company’s portfolio is focused on three segments: self-care, essential health, and skin health and beauty.
It owns brands we are all familiar with such as Johnson’s Baby, Listerine, and Band-Aid.
For the first quarter of 2024 (1Q 2024), Kenvue recorded a revenue of US$3.9 billion, a 1.1% year on year increase, with the self-care and essential health department driving sales volumes.
Net profit decreased by 36.9% year on year, from US$469 million to US$296 million.
However, the profit decline can be attributed to a US$68 million impairment charge as well as expenses related to restructuring and optimisation initiatives.
More importantly, Kenvue’s gross margin improved from 55.2% to 57.6% year on year as the company continues to focus on supply chain efficiency.
The company also generated a positive free cash flow of US$100 million in 1Q 2024.
The world’s leading consumer health firm is also focused on strengthening its skincare and beauty department, which has lagged behind its peers.
It is intensifying media investments in its Neutrogena brand to raise awareness and interest.
Although newly listed, Kenvue has been issuing dividends. It has recently declared a second quarterly dividend of US$0.20 per share.
Unilever (NYSE: UL)
Unilever is a leading fast moving consumer goods (FMCG) business with its products sold in 190 countries.
It owns some of the most iconic brands across various segments including home care, personal care, and packaged food.
Among its famous brands are Ben & Jerry’s, Dove, and Cif.
Close to half of the world’s population use Unilever’s products daily.
For 1Q 2024, Unilever reported revenue of €15 billion, marking a 1.4% year on year increase.
All of Unilever’s segments witnessed an improved yearly underlying sales growth, with personal care recording the highest at 7.4%.
Unilever’s global scale has also contributed to its sales growth, with emerging markets recording a 5.4% year on year underlying sales growth, which is higher compared to the growth of only 3.0% in developed markets.
Unilever’s Growth Action Plan (GAP) has begun to bear fruit. Launched in October 2023, the FMCG giant increased investments in its power brands to drive faster growth and enhance productivity.
For this quarter, power brands such as Dove and Rexona saw a year on year underlying sales growth of 6.1%.
For fiscal year 2023, Unilever reported a substantial increase in free cash flow, reaching €7.1 billion, up from €5.2 billion in fiscal year 2022.
It is now planning to separate its ice cream unit, which is vastly different from its other segments, as it seeks to accelerate its GAP.
The company recently issued a dividend of US$0.46 a share.
Energizer (NYSE: ENR)
Energizer, one of the world’s largest manufacturers of primary batteries and portable lighting products, is well known for its Energizer and Eveready batteries.
For the second quarter of fiscal 2024 (2Q FY2024) ending 31 March 2024, the company reported a slight decrease in net sales of 3.0% year on year, from US$684.1 million to US$663.3 million.
Net profit fell from US$40 million to US$32.2 million, a 19% year on year decrease.
Despite the dip in profit and revenue, gross margin saw an improvement, increasing from 37.0% to 38.2% year on year.
However, the decline in profit is the result of a restructuring cost of US$23.4 million incurred this quarter, significantly higher than the previous year’s US$7.5 million.
This cost is associated with “Project Momentum”, a cost-saving initiative aimed at improving profitability in the upcoming fiscal years.
Energizer’s core battery business faced a decrease in sales, but this was offset somewhat by its growing auto care business.
The company generated a free cash flow of US$162.9 million for the quarter.
Debt remains a concern for the battery maker, with a net debt to adjusted EBITDA ratio of 5.2x.
The company is committed to trimming its debt, having paid down US$141 million in long-term debt this year.
Energizer declared a dividend of US$0.30 per share, similar to what was paid out a year ago.
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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.
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