Are All-Time High Prices Supported By Procter & Gamble?

With shares of Procter & Gamble (NYSE:PG) trading around $78, 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:

T = Trends for a Stock’s Movement

Procter & Gamble engages in the manufacture and sale of a range of branded consumer packaged goods. The company operates in five segments: beauty, grooming, health care, fabric care and home care, and baby care and family care. Procter & Gamble markets its products through mass merchandisers, grocery stores, membership club stores, drug stores, high-frequency stores, department stores, perfumeries, pharmacies, salons, and e-commerce in approximately 180 countries worldwide. The products provided by Procter & Gamble are essentials to many people across the globe.

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T = Technicals on the Stock Chart are Strong

Procter & Gamble is a stock that has seen a consistent long-term uptrend. Currently, the stock is trading near all-time highs and shows no signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Procter & Gamble is trading above all of its rising key averages which signal bullish price action in the near-term.

PG

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Procter & Gamble options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Procter & Gamble Options

17.99%

70%

65%

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What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of today, there is an average demand from call buyers or sellers and average demand from put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Procter & Gamble’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Procter & Gamble look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

143.86%

-6.8%

47.62%

-14.58%

Revenue Growth (Y-O-Y)

2.02%

-3.67%

2.38%

1.51%

Earnings Reaction

4.01%

-0.89%

3.14%

-1.24%

Procter & Gamble has mostly seen increasing earnings and revenue over the last four quarters. From these figures, the markets have been generally pleased about Procter & Gamble’s last four earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Procter & Gamble stock done relative to its peers, Johnson & Johnson (NYSE:JNJ), Kimberly-Clark (NYSE:KMB), Colgate-Palmolive (NYSE:CL), and sector?

Procter & Gamble

Johnson & Johnson

Kimberly-Clark

Colgate-Palmolive

Sector

Year-to-Date Return

13.04%

15.75%

13.82%

10.34%

11.34%

Procter & Gamble has been a relative average performer year-to-date.

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Conclusion

Procter & Gamble is a well-positioned company that provides essential products to consumers across the globe. The stock has been a consistent performer and is currently trading at all-time high prices supported by good earnings and revenue growth rates. Relative to its peers and sector, Procter & Gamble has been an average performer. Look for Procter & Gamble to OUTPERFORM.

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