Is Procter and Gamble Still Bulletproof?

With shares of Procter & Gamble (NYSE:PG) trading at around $80.08, is PG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Procter & Gamble didn’t perform well during the financial crisis of 2008/2009. However, as has been the case for all other difficult economic times, Procter & Gamble bounced back with authority. Procter & Gamble has dealt with several difficult time periods, some of which have lasted years, but the stock always eventually reached new all-time highs. Looking ahead, it’s possible for a similar pattern to play out. This would be bad news for traders, but most people in this stock are in it for the long haul. It might not be the most defensive name in existence, but it’s a stock that can weather a steep market correction relatively well. The 2.90 percent yield also helps. For those who are wondering what stocks held up better than Procter & Gamble in 2008, here are a few examples:

Family Dollar Stores (NYSE:FDO)

Amgen Inc. (NASDAQ:AMGN)

Celgene Corporation (NASDAQ:CELG)

Wal-Mart Stores Inc. (NYSE:WMT)

AutoZone Inc. (NYSE:AZO)

Gilead Sciences Inc. (NASDAQ:GILD)

Of course, this doesn’t mean the results would be the same if the market suffered another steep correction, but it’s still interesting information to note. Regardless, the reason Procter & Gamble always bounces back and sets new all-time highs is because of its brands. It has 50 leadership brands, and half of them generate at least $1 billion in annual revenue. Some Procter & Gamble brands include Braun, CoverGirl, Oral-B, Scope, Tampax, Crest, Head & Shoulders, Gillette, Ivory, Bounty, Febreze, Luvs, Puffs, Cascade, Charmin, Tide, Pampers, Mr. Clean, Cheer, Downey, Joy, Vicks, and Swiffer. This list is expected to grow considering Procter & Gamble is constantly innovating so it can add to its product line.

In regards to company culture, it’s excellent. Glassdoor.com is a site where employees rank their employers. Procter & Gamble has received an average rating of 3.9 (of five), which is high. An amazing 88 percent of employees would recommend the company to a friend, and 76 percent of employees approve of CEO Bob McDonald.

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Other positives for Procter & Gamble include strong cash flow, consistent revenue and EPS growth, and quality debt management.

Let’s get to some comparative numbers. The chart below compares fundamentals for Procter & Gamble, Kimberly-Clark Corporation (NYSE:KMB), and Colgate-Palmolive (NYSE:CL). Procter & Gamble has a market cap of $217.63 billion, Kimberly-Clark has a market cap of $39.20 billion, and Colgate-Palmolive has a market cap of $55.58 billion.

PG

KMB

CL

Trailing   P/E

18.08

22.88

23.08

Forward   P/E

18.27

16.91

18.77

Profit   Margin

15.50%

8.31%

14.47%

ROE

17.51%

33.80%

106.71%

Operating   Cash Flow

$14.41 Billion

$3.29 Billion

 $3.20 Billion

Dividend   Yield

2.90%

3.30%

2.30%

Short   Position

0.90%

2.10%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Normal  

The debt-to-equity ratio for Procter & Gamble is at the industry average of 0.50. This is stronger than the debt-to-equity ratios for Kimberly-Clark and Colgate-Palmolive. This would put Procter & Gamble in a more manageable situation when interest rates increase.

Debt-To-Equity

Cash

Long-Term Debt

PG

0.50

$6.97 Billion

$33.43 Billion

KMB

1.27

$1.11 Billion

$6.73 Billion

CL

2.19

$1.00 Billion

$5.23 Billion

 

T = Technicals Are Strong

Procter & Gamble is never going to blow the market away, but it’s one of the best places to be for slow and steady returns – over the long haul.

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1 Month

Year-To-Date

1 Year

3 Year

PG

3.48%

18.91%

25.81%

39.54%

KMB

7.94%

20.92%

41.06%

86.17%

CL

3.98%

13.88%

24.67%

50.95%

 

At $80.07, Procter & Gamble is trading above all its averages.

50-Day   SMA

77.06

100-Day   SMA

73.37

200-Day   SMA

70.00

 

E = Earnings Have Been Steady           

Revenue has consistently improved on an annual basis. Earnings suffered a moderate setback in 2012, but profits are still large.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

79.26

76.69

77.57

81.10

83.68

Diluted   EPS ($)

3.64

4.26

4.11

3.93

3.66

 

Looking at the previous quarter on a year-over-year basis, there were improvements in revenue and earnings. On a sequential basis, there were once again improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2013

Revenue   ($)in   billions

21.74

20.19

20.21

20.74

22.18

Diluted   EPS ($)

0.57

0.82

1.24

0.96

1.39

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

The biggest threat is generic products, especially if the consumer continues to weaken. However, Procter & Gamble will be capable of competing regardless of industry changes. Millions of consumers are loyal to Procter & Gamble brands.

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Conclusion

When looking at Procter & Gamble as a long-term investment, not many stocks can compete with it. This is one of the best-run companies in the world. Therefore, future success is likely. If the stock market suffers a steep correction, then Procter & Gamble’s stock will suffer. It isn’t bulletproof in that sense. However, it should eventually recover.

Procter & Gamble is a long-term OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I am currently short technology, financials, the Russell 2000, and the euro.