Although the FTSE 100 index of leading British shares has had a strong run in recent years, that does not mean that all the shares in it are expensive.
Recently I bought a FTSE 100 share that sells for 11 times earnings, offers a 4.1% dividend yield, and has jumped 15% in the past month alone.
Despite that jump, it is still 16% cheaper now than it was at the start of the year.
In fact, I continue to see it as a potential bargain for investors to consider.
A proven, profitable business
The company in question is multinational consumer goods manufacturer Reckitt Benckiser (LSE: RKT).
Reckitt may not be a household name but many of its brands certainly are, from Dettol to Harpic and Nurofen to Strepsils.
Owning premium brands in categories with enduring, resilient customer demand has been a recipe for success.
Reckitt has proven its strong ability to generate both profits and free cash flows over many years. That helps to support the juicy dividend yield I mentioned above.
What’s happened to the share price?
The past month’s share price jump is well ahead of the wider FTSE 100’s 3% gain during that period. I think that suggests that value investors may have been reassessing Reckitt and whether its long-term share price fall is justified.
Stepping back to the wider picture, though, that does raise a good question. If Reckitt has the business strengths I think it does, why has its share price fallen 22% over the past five years when the FTSE 100 has moved up 50%?
While the underlying business looks strong to me, Reckitt has been dragged down by a couple of historical factors.
One is a disastrous and highly overpriced acquisition of a nutrition business.
That was in 2017 and the company has since written down billions of pounds but the deal has cast a long shadow on Reckitt’s financial performance. As time moves on, that is getting smaller, fortunately.
Another factor is the ongoing risk of litigation for historical product liability claims. I see that risk as meaningful, but manageable.
In fact, from my perspective as a Reckitt shareholder, I am more immediately concerned about what an inflationary environment could mean for profit margins.
I’d be happy to hold this for years
Still, weighing the strengths of the business and its risks, I think the current Reckitt share price continues to look attractive.
I am a long-term investor and like to buy and hold quality companies when I think they trade at an attractive share price.
Right now, I think this FTSE 100 company meets those criteria. With the prospect of a healthy dividend along the way, I would be happy to hold the share for years.
I am hopeful that over time Reckitt’s share price will rise to reflect its underlying value more closely.
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Christopher Ruane owns shares in Reckitt Benckiser.
