A rising Tide: Procter & Gamble could put a shine on your portfolio
Filed under: Company News, Investing, Stock Picks, Procter & Gamble
Procter & Gamble (PG) is probably the strongest consumer-staples stalwart on a U.S. exchange. Long considered one of the best-managed companies in the country (making everything from Tide detergent to Crest toothpaste to Pampers diapers), this component of the Dow Jones Industrial Average ($INDU) has made great strides in shedding lower-margin businesses while buying or building out more profitable ones. (Olay beauty products for $130, anyone?) As Jefferies & Co. analyst Douglas Lane told clients when he initiated coverage with a buy in September: "[The company's decision] to make fiscal 2010 an investment year provides a powerful catalyst for share outperformance over the next 12 to 36 months. Additionally, the stock has been trading at a market discount recently for the first time since we exited the last recession."
Oh, and what a discount it is. Shares currently offer a discount of 30 percent to the broader market on a forward price/earnings (P/E) basis, according to Thomson Reuters, and a 24 percent discount to P&G's own five-year average. By the price/earnings-to-growth ratio (PEG), shares trade at discounts of 27 percent to the market and 11 percent relative to P&G's five-year average. These measures indicate that the stock is deeply cheap on a relative valuation basis.
Finally, P&G has large, predictable cash flow, making the 3.1 percent dividend yield something shareholders can bank on. "Historically, P&G converts 100 percent or more of its net income to cash, which it has used to fund a stable and growing dividend (10-year compound annual growth rate of more than 11 percent) and nearly $40 billion of share buybacks over the past four years," Lane notes.
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Reader Comments (Page 1 of 1)
10-26-2009 @ 5:45PM
kevin said...
P&G has not done well during the recession with their high priced products. They also have little international exposure. Unlike CP, who has been kicking PG's butt.
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10-26-2009 @ 6:01PM
conwaykram said...
am missing something. WHat company is "CP" you refer to? That symbol is Canadian Railroad I think. Are you referring to Unilever?
10-26-2009 @ 6:16PM
kevin said...
(CP) Colgate-Palmolive
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10-26-2009 @ 6:26PM
kevin said...
Correction: (CL) sorry memory lapse.
Reply
10-26-2009 @ 6:42PM
John said...
Procter and Gamble has little overseas experience..???? You really need to get on line and Google P&G's overseas sales and profits!
Reply
10-26-2009 @ 7:27PM
Rob said...
Foolish post .. the one that suggests that PG does not have big international sales, it is a global company and has big international operations.
However, the good thing is, PG has not saturated the potential abroad; thus it is true that PG has a lot of room for GROWING its International saturation ... room to grow that market.
The article is very well written and is very accurate in laying out the FACTS that show why Proctor & Gamble has the fundamental foundation for great appreciation and great income (dividends) over the next 5 years.
I am long (and buying more) because I think we will see $75 in not very distant future, will see 10% or more a year increase in the divident and I think it will go over $100 in less than 5 years (while paying the good, increasing each year, dividend). When it reaches $120 or so, it will split again ... as it has done many times over its long history of appreciation.
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