Inflation is eating away at your wallet, but it's also putting a great deal of pressure on companies like Hormel (HRL 1.00%) and Unilever (UL 0.34%). In fact, the prices these companies are passing through to consumers are among the reasons why life is getting more expensive. But both Hormel and Unilever look like attractive options today if you have $2,000 or more to put to work. Here are some reasons why.
1. This too shall pass
You see inflation when you go to the grocery store, as your weekly bill seems to go up and up. Consumer staples companies are a part of the problem, because the elevated prices you are paying are driven by them passing on their own rising costs. They are doing this to protect their profit margins, but while it seems shocking today after a long period of low inflation, this is really just the normal way things work. Companies like Hormel and Unilever are also working to cut costs for the same reason.
Image source: Getty Images.
Once inflation has peaked and these companies and their peers have offset the inflation hit, the price hikes will return to more normal levels. And when that happens, investors will likely take a more positive view of the future. Put simply, inflation is a near-term worry, not a long-term problem for large, industry-leading names like Hormel and Unilever.
2. Growth opportunities
Hormel, with a roughly-$25 billion market cap, is modestly sized compared to Unilever's nearly $130 billion. That means they have very different industry positions, but they both have very interesting growth opportunities.
In the case of Hormel, it is starting to build out its business globally, where it has modest exposure today. That should provide years of growth to the business. Unilever, meanwhile, generated around 60% of its revenue from emerging markets. Emerging markets are expected to grow more quickly than developed ones over time.
For example, Unilever's sales in emerging markets grew roughly 3.2 percentage points faster than did its sales in the United states in 2022, despite the headwinds from China's economic shutdowns.
All in, Hormel and Unilever have plenty to offer long-term investors.
3. Unique positions
However, these two consumer staples players aren't interchangeable investments. Hormel's largest shareholder is the Hormel Foundation, which uses the dividends it collects to donate to charity. It also has the specific goal of ensuring Hormel's independence.
Put simply, this 46% shareholder's needs means that slow and steady growth in the business and the dividend are the most likely outcomes, now and in the future. If that sounds good to you, you'll be happy to invest alongside the Hormel Foundation.
Unilever, meanwhile, has been looking to revitalize its business by shifting out of slow-growth products (like tea) and into higher-growth fare (like health). That's not an easy process, and it has attracted the attention of activist shareholder Nelson Peltz, who has been given a board seat.
Peltz, meanwhile, helped Unilever competitor Procter & Gamble (PG 0.86%) successfully make basically the same transition a few years ago. Unilever has also been shifting internally to simplify its business structure and tie performance more closely to pay (also similar to P&G). In other words, Unilever is a bit of a turnaround play following a path that has proven successful for other companies.
Both of these stocks could easily find places in the same portfolio.
4. Good prices
Hormel's dividend yield is 2.4% today, which may sound fairly modest to you if you are an income investor. However, that is toward the high end of the company's historical yield range, which suggests it is on the sale rack. Now add the fact that the dividend has grown at an annualized rate of more than 10% over the past decade, and growth and income investors should find even this modest yield very attractive.
Unilever's yield is a much higher 3.4%. That compares very favorably to the 2.5% on offer from the Consumer Staples Select Sector SPDR ETF. So it too looks like a strong dividend choice, noting that a solid turnaround will likely result in Wall Street gradually assigning it a more attractive price.
Split the cash
The $2,000 figure in the title is somewhat random, it could just as easily have been $20,000. The point is, if you are looking to put some money to work, both Hormel and Unilever look reasonably attractive right now. But they have different profiles, and it might make sense to go 50/50 with whatever money you have. That way you get the benefit of a growth and income stock and the turnaround opportunity on offer from an industry giant.
