Investors: Is Procter & Gamble’s Bulletproof Equity Era Over?

With shares of Procter & Gamble (NYSE:PG) trading at around $69.22, is PG a Buy, a Wait and See, or a Stay Away? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

P&G has been one of the best stocks to own over the past several decades. If you have owned it since the early 1970s, then you have enjoyed great stock performance, solid dividends, and six splits. Despite the stock being near a 52-week high at the moment, the stock’s performance over the past two years has been up and down. However, that’s the great part about owning a high-yield stock. You still make money. Perhaps we shouldn’t say ‘high-yield’ since 3.20% isn’t extraordinary. The highest it has ever gone was 3.80%.

As well all know, you can look in any closet or cabinet in your home and find a Procter & Gamble product. P&G is a top-tier consumer staples stock. This, in turn, has led to one of the steadiest stock rises in history. Amazingly, P&G remains appealing despite very limited changes. It’s far from a growth stock, yet it performs better than most growth stocks. Will that trend continue?

The biggest negative for P&G has always been weak growth potential. However, that shouldn’t scare you. Procter & Gamble is currently increasing profitability in emerging markets while also heading in the direction of cost-savings. Most importantly cash flow is always strong.

E = Debt to Equity Ratio is Normal

Procter & Gamble has a debt-to-equity ratio of .49, which is extremely low. It’s in range with Procter & Gamble’s competitors. Kimberly-Clark (NYSE:KMB) has a debt-to-equity ratio of 1.10. Johnson & Johnson (NYSE:JNJ), has a debt-to-equity ratio of .26.

Procter & Gamble has $5.30 billion in cash and $31.88 billion in debt. These numbers might seem a little scary, but assets greatly outweigh liabilities. Kimberly-Clark has $1.25 billion in cash and $6.40 billion in debt. Johnson & Johnson has $19.77 billion in cash and $11.43 billion in debt. Johnson & Johnson is clearly the leader of the pack in this category, and rightfully so. JNJ is one of the safest stocks to own on the planet, even more so than P&G…

T = Technicals on the Stock Chart Are Strong

As of November 27, Procter & Gamble has stayed on pace with the S&P 500 over the past month. Procter & Gamble has dropped .20% while the S&P 500 has dropped .15%. Amazingly, despite P&G being near a 52-week high, it’s still underperforming the S&P 500 over the past year as well as the past few years.

Year-to-date, Procter & Gamble is up 7.39% while the S&P 500 is up 14.09%. Over the past calendar year, Procter & Gambler is up 17.44% while the S&P 500 is up 24.12%. When you look at three-year returns, Procter & Gamble is up 22.02% while the S&P 500 is up 34.85%.

Procter & Gamble is currently trading a few cents above its 50-day SMA of $68.68. It’s trading a couple of dollars above its 100-day SMA of $67.20. It’s trading a few dollars higher than its 200-day moving average of $65.95.

Procter & Gamble has always been a steady stock to own. The underperformance of the stock when compared to the S&P 500 shouldn’t be taken too seriously. In times of irrational exuberance, which we have seen over the past few years due to quantitative easing, investors and traders tend to migrate toward high-risk/high-reward stocks.

E = Earnings Are Steady Year Over Year

Procter & Gamble’s revenue has increased over the past few years. You’re not going to find many surprises in this area:

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

Procter & Gamble’s quarterly revenue is just as consistent:

9/30/2011 12/31/2011 3/31/2012 6/30/2012 9/30/2012
Revenue ($) in billions 21.53 22.14 20.19 19.82 20.74
Diluted EPS ($) 1.03 0.57 0.82 1.23 0.96

T = Trends Support the Industry

In such an unpredictable economy, it’s difficult to find a sure thing. While no stock qualifies as a sure thing, P&G is in the right industry when it comes to reliability. Even if the economy is struggling, people are going to need products such as shampoo, toothpaste, and paper towels. Therefore, the trend is always strong in this industry. The only potential downfall is poor management, which Procter & Gamble doesn’t have to worry about.

Conclusion

Procter & Gamble is a safe stock to own. That said, it’s NOT bulletproof. If you remember the Flash Crash of 2010, P&G got slaughtered. That might have been due to high-frequency trading by computers, but they still took a hit. Also, P&G might have weathered the Financial Crisis of 2008 better than most stocks, but it still didn’t perform well. Bulletproof would refer to a stock that never gets hurt regardless of external circumstances. Since that stock doesn’t exist, P&G is a BUY for the long-term. However, it’s recommended that you don’t buy this stock until after the Fiscal Cliff scenario unfolds. If you already own P&G, then it’s a WAIT AND SEE in the near-term.

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.

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