As long as the American public buys household and personal goods, it’s reasonable to assume that Procter & Gamble (NYSE:PG) stock is a safe “set-it-and-forget-it” kind of investment. It’s not known as a high flyer. But then, take a look at a multi-year chart and you might be surprised to see how lofty the PG stock price actually is.
Don’t get the wrong idea — I’m not telling you never to own Procter & Gamble stock.
In fact, I’d say it could be bought at any price and should eventually turn a profit. But that’s over a long enough time horizon.
And, unless your favorite holding period is forever (like Warren Buffett once famously said), I would consider waiting for a better opportunity to take a position.
Timing Your Entry With PG Stock
It’s always a challenge when you really like a company but you missed out on strong gains. This leaves investors ambivalent and fearful of missing out on further upside. But for value investors like me, it’s hard to justify buying shares. This is especially true after the PG stock price has ascended almost without interruption from around $72 in April 2018 to around $124 this month.
That’s a breathtaking run for a traditionally low-beta stock, but it is what it is.
We have to work with the price that’s on the chart, not what we think the price ought to be. It’s amazing to consider that Procter & Gamble stock now has a trailing 12-month price-to-earnings ratio of 78.4.
But this isn’t your father’s or your grandfather’s market.
Consecutive earnings beats undoubtedly contributed to the current PG stock valuation, with the most recent earnings results impressing analysts and shareholders alike. PG’s third-quarter 2019 earnings per share came in at $1.37, beating the analyst consensus estimate of $1.24. The quarterly revenues of $17.80 billion, meanwhile, topped the analyst community’s projection of $17.42 billion.
This prompted RBC analysts to say that the report “exceeds even our heightened expectations.”
A Company That Still Dominates
Honestly, I can’t blame the experts for placing “heightened expectations” on what might be the best company in the consumer-products niche. Whether it’s Gillette razors, Crest toothpaste, Dawn dish wash detergent, Pampers diapers or Vicks cough drops, chances are excellent that your family uses at least one Procter & Gamble product. The company is a master of promotion and branding, which is one of the reasons I’ve repeatedly recommended PG stock.
As NYU’s Maxime C. Cohen and MIT’s Jeremy J. Kalas and Georgia Perakis point out in a research study on supermarket promotions, “Retail promotions have a significant impact on boosting sales and on influencing customers … 90% of adult consumers are influenced by promotions in terms of the amount they spend and the items they purchase.”
The fact that Procter & Gamble’s products are in so many households right now is proof positive that the company still has the ability to get in your head, and in your pocketbook.
Granted, there are macroeconomic factors (you knew I was going to mention the trade war sooner or later, didn’t you?) that are beyond Procter & Gamble’s control. But PG stock investors don’t need to anticipate future economic events — nor should they try to.
Jon Moeller, Procter & Gamble’s chief financial officer, has a quote on this topic which really impressed me:
“In terms of predicting any kind of consumer acceleration or consumer slowdown, we aren’t in that business … There are many things that can affect consumer confidence that are things we wouldn’t even have the ability to anticipate today — certain geopolitical events, certain political developments within the country, et cetera. So, your guess is as good as ours in terms of what market growth does going forward.”
I find the tone of humility admirable (are you listening, Elon?), and I truly believe that PG stock could eventually survive just about any macroeconomic shock. Still, at the current price and P/E ratio, I just can’t bring myself to recommend taking a long position until the valuation comes down or at least “takes a breather” (i.e., goes sideways) for a little while.
The Takeaway on Procter & Gamble Stock
It pains me to suggest not buying a stock that I like so much, but I’m an incorrigible cheapskate; just as I like to buy Procter & Gamble’s products with a coupon, I’d prefer to own PG stock at a discount.
Maybe, if I’m lucky, it’ll go on sale soon.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.