PG Stock Is on the Comeback Trail

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Procter & Gamble (PG) is the world’s No. 1 consumer staples stock.

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That has been a very good thing to be, until the dollar strengthened and the global economy weakened, again. Most of 2015, however,  was spent trying to keep growth alive in a world that was having a hard time doing that.

But, year to date, PG stock has held up, running about breakeven. Add its 3.3% dividend yield and you’re up better than most major averages.

Since this week’s earnings report, PG stock has risen to flirt with its 52-week high, which is a vote of confidence in its recent earnings statement.

The statement wasn’t fantastic, but with a company this size direction is more important than knocking it out of the park. Remember, Procter & Gamble doesn’t sell iPhones or blockbuster drugs; it sells razors, toilet paper, toothbrushes, and soaps.

But, given the fact that PG is nearly double the size of its closest competitor, Unilever (UL) — which, to be fair, has an entire food division as well — Procter & Gamble is the bellwether for the consumer discretionary and consumer staples sectors.

Kimberly Clarke (KMB) is PG’s truest pure-play competition, yet KMB is 4x smaller (by market cap) than PG.

The problem is that industry leaders such as PG have a hard go of it when markets start to slow. Because they’re so big, it’s difficult to find growth. Fortunately, management addressed this issue last year when they determined that the U.S. dollar was likely to remain strong for some time and put pressure on international sales, which account for almost two-thirds of PG’s revenue.

That meant PG was going to have implement measures to counter the strong dollar. So, management did two things: it cut costs and it looked to refocus efforts on the U.S. market. If the dollar is strong and the U.S. economy is doing better than most, it certainly stands to reason that it’s the market to work. It also means that prices could probably be raised to increase profit margins.

And, that plan has worked.

Revenue was up 1% for the last quarter versus a -1% number for the year-ago quarter. That’s a very positive swing for a company the size of PG, especially given the volatility and news out of Q4.

Also, in line with its cost-cutting and price-raising, gross margins went from 20% to 23%.

While UL and KMB both posted 5% growth for the quarter, there’s one important difference — both of those companies are guiding lower for 2016, saying it’s going to be tough going and investors shouldn’t count on that level of growth moving forward.

PG, on the other hand, has raised its expectations for the year. With a stock like this, slow and steady will always win the race.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/01/pg-comeback-trail/.

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