Procter & Gamble Goes on Sale (NYSE: PG)
(Stocks in this article: NYSE: PG, NYSE: CL, NYSE: KMB, NYSE: CAT)
The shares of consumer staples provider Proctor & Gamble (NYSE: PG) had a nice run since September, but are being reevaluated now due to margin pressures. I think after near-term adjustment, these shares should come back to favor for two simple reasons. First and foremost, PG offers products that provide sales stability and the wherewithal to survive trying economic times. Secondly, premium brand champions should have pricing power, and find ability to shift rising commodity and energy costs to the consumer, unless things get really bad.
Both Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) reported quarterly results on Tuesday. These, and like companies, are benefiting from global growth on a softening dollar, while offering an ability to traverse economic troughs. However, PG fell 4% on Tuesday, as despite beating estimates by a penny before a nonrecurring item, the company only raised its full-year forecast to a range meeting analysts’ consensus. More importantly, the company pointed to margin pressures born from higher commodity and energy prices. I believe this is the theme driving PG and the shares of other companies with similar risks now.
Colgate-Palmolive (NYSE: CL) also beat estimates by a penny Tuesday, but offers a stock that has run up since September and a valuation I view pricey. Its shares were lower in the pre-market on Tuesday, but recovered to close the day 1.3% higher. I expect that if not for PG’s important margin notation, CL would have been free to fly yesterday, pricey or not. As a result, my feeling is that the near-term movement has offered opportunity to enter the shares of PG.
Despite my concerns for the likes of econo-sensitive multinationals like Caterpillar (NYSE: CAT) and others, I think investors should search the multinational bathwater for global consumer staples opportunities. Unlike Caterpillar, demand for staples is not going to wane with cyclical trough. While tough times might lead you to limit your vacation extravagances or seek out more sales over the holidays, it takes really trying times to lead you to switch toothpaste or bathing soap brands. Thus, premium brands hold customer loyalty, and I believe provide at least some pricing power.
In early October, Kimberly-Clark (NYSE: KMB) cited higher raw material and energy costs as necessitating the raising of prices of consumer tissue and baby and child care products in 2008. I believe it’s only a matter of time before PG and others follow suit. PG is up this year, especially since September, and so I wanted to see it settle over the near-term, before looking to buy. The shares already started to recover ground yesterday, and are up today.
There’s one other point I seek to make. Remember, bad news for most stocks is usually a capital driver into consumer staples shares. I believe the Federal Open Market Committee offered a policy statement on Wednesday that will be viewed as not expansionary enough, and offering a forward neutral bias. Thus, I expect stocks that have benefited since the Fed’s change of direction back in mid-August will give back capital now. I expect capital will also flow out of gold and energy shares, on ensuing dollar stability or strength. All this capital will need a place to go, and the recession resistant consumer staples sector still seems like a great place for it.
As the dust settles, I would look to buy Proctor & Gamble (NYSE: PG). All of these diversified product companies face the same stresses, so as PG goes on sale, it offers a bargain versus peers who have yet to warn. P&G raised its fiscal ’08 (June) earnings forecast to $3.46 to $3.49, about in line with the $3.47 consensus estimate already in place (revised higher to $3.48 today). Now trading at approximately 19.9X that consensus view, the shares sport a hefty 1.7 P/E/G ratio. However, this compares to a sector average and measures for peers CL and KMB all above 2.0, according to data from Yahoo! Finance and Capital IQ. Thus, market leader, PG, presents value on a relative basis.
Both Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) reported quarterly results on Tuesday. These, and like companies, are benefiting from global growth on a softening dollar, while offering an ability to traverse economic troughs. However, PG fell 4% on Tuesday, as despite beating estimates by a penny before a nonrecurring item, the company only raised its full-year forecast to a range meeting analysts’ consensus. More importantly, the company pointed to margin pressures born from higher commodity and energy prices. I believe this is the theme driving PG and the shares of other companies with similar risks now.
Colgate-Palmolive (NYSE: CL) also beat estimates by a penny Tuesday, but offers a stock that has run up since September and a valuation I view pricey. Its shares were lower in the pre-market on Tuesday, but recovered to close the day 1.3% higher. I expect that if not for PG’s important margin notation, CL would have been free to fly yesterday, pricey or not. As a result, my feeling is that the near-term movement has offered opportunity to enter the shares of PG.
Despite my concerns for the likes of econo-sensitive multinationals like Caterpillar (NYSE: CAT) and others, I think investors should search the multinational bathwater for global consumer staples opportunities. Unlike Caterpillar, demand for staples is not going to wane with cyclical trough. While tough times might lead you to limit your vacation extravagances or seek out more sales over the holidays, it takes really trying times to lead you to switch toothpaste or bathing soap brands. Thus, premium brands hold customer loyalty, and I believe provide at least some pricing power.
In early October, Kimberly-Clark (NYSE: KMB) cited higher raw material and energy costs as necessitating the raising of prices of consumer tissue and baby and child care products in 2008. I believe it’s only a matter of time before PG and others follow suit. PG is up this year, especially since September, and so I wanted to see it settle over the near-term, before looking to buy. The shares already started to recover ground yesterday, and are up today.
There’s one other point I seek to make. Remember, bad news for most stocks is usually a capital driver into consumer staples shares. I believe the Federal Open Market Committee offered a policy statement on Wednesday that will be viewed as not expansionary enough, and offering a forward neutral bias. Thus, I expect stocks that have benefited since the Fed’s change of direction back in mid-August will give back capital now. I expect capital will also flow out of gold and energy shares, on ensuing dollar stability or strength. All this capital will need a place to go, and the recession resistant consumer staples sector still seems like a great place for it.
As the dust settles, I would look to buy Proctor & Gamble (NYSE: PG). All of these diversified product companies face the same stresses, so as PG goes on sale, it offers a bargain versus peers who have yet to warn. P&G raised its fiscal ’08 (June) earnings forecast to $3.46 to $3.49, about in line with the $3.47 consensus estimate already in place (revised higher to $3.48 today). Now trading at approximately 19.9X that consensus view, the shares sport a hefty 1.7 P/E/G ratio. However, this compares to a sector average and measures for peers CL and KMB all above 2.0, according to data from Yahoo! Finance and Capital IQ. Thus, market leader, PG, presents value on a relative basis.
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posted by The Greek | 12:32 PM
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