Decline in Procter & Gamble Is Overdone

Just in case anyone hasn't noticed, consumer staples stocks, those that are usually deemed to be safe havens in a market storm, having been falling like rocks lately. Procter & Gamble (PG) is down 22% year to date, Coca Cola (KO) (10%), Diageo (DEO) (19%), Pepsico (PEP) (11%), Johnson & Johnson (JNJ) (14%), and Wal-Mart (WMT) down 13%.

I think this is just a natural stage in a major market decline where investors are realizing that these names have been piled into when the market got ugly and they are now being liquidated due to their relatively higher value. Another reason for the declines are likely due to evidence in some sectors that consumers are trading down and using less brand name goods that people might normally consider recession resistant. For example, alcohol and some health care goods have shown signs lately of reduced demand. For these large global names, the fact that the US dollar has strengthened over the past year has not helped.

In my opinion the recent decline in global consumer goods firm Procter & Gamble has been overdone. This stock is trading at 2003 levels, when its earnings and dividends per share were $1.85 and $0.91 respectively. The company now earns $3.68 and pays a dividend of $1.60, which will be raised by April, 2009.

With a P/E ratio of 13x, this is certainly good value for a company with 25 Billion dollar brands and a growing presence in the developing world. I confidently added to my investment in PG this past week.

Comments

[SteveTheHawk:]

In normal times, I would say you were correct. Considering the overall state of affairs, I have so many doubts that viewing any stock as cheap is difficult.

Mar 01 08:14 AM

[Pj568:]

While PG continues to generate significant earnings, it seems they also continue to neglect the balance sheet.

At first glance it looks OK with leverage around 2.5 then you notice they have negative working capital of 12B, intangibles of 87B versus total equity of 63B results in negative tangible assets of 24B and total debt of 32B. In other words poor liquidity.

With solid earnings they might not have any earnings impairment but they need to get liquidity back into their balance sheet without more debt. Stopping the buybacks would help. They could also reduce dividends if needed. Recently buybacks and dividends were partially funded by increased debt.

I'd prefer to know how the're going to fix their problem before becoming a buyer.

Mar 01 08:27 AM

[seer:]

in perilous times every stock gets hurt. the best and surely the worst. fear has overtaken the market and who knows where the market will go from here. i heard of stocks sold during the depression years for prices of pennies on the dollar, just because there were no buyers. i am hoping that obama's stimulation programs , things may get better. the banks , however, are putting a pall over the market.

Mar 01 10:27 AM

[TA:]

PG is one of the few invicible stocks out there being that for some reason people still have wash their clothes, etc yet look at the comments. I never owned it because it's dividend was always too low but that appears to be changing.

The mood has clearly gone from bearishness to captiulation. All stocks are bad and the market is only for fools and day traders.

Mar 01 11:39 AM

[SJMDESIGN LTD:]

PG will come back with good upside.
This stock has been punished due to market down turn.
This is a good time to buy as it rebounds from its low.
This stock will pass it last high within next 14 month
with divident reinvestement program it is a no brainer.
With population expanding and middle class growing
in hundered of million worldwide.
There is one winner and that is consumer good producer.

Apr 19 11:32 AM