There was a point in time when we saw Procter & Gamble (PG) selling to the point where no one wanted to touch it. Analysts would come about or a well known hedge fund manager would say, "These are names you buy on pullbacks!" But we all watched it fall, first through $65, then through $62.50, and finally pass through $60. $60 held up nicely, but in the end, it failed. But as it sat near $59 and change, I was waiting to see it get down to $57.50, where I would buy. That day did not come, and last Thursday I realized this, as I got long PG.
I think it's safe to enter into PG at this time. Obviously the further it fell, the better bargain it became. I wanted to fall further, but PG is a big name and has a solid buy-and-hold crowd, it can only fall so far. I am not saying that this name can't go down, just that at $60, a starter position is well warranted. Here is a Seeking Alpha excerpt of the events that caused the recent selling:
"Wednesday, June 20, 5:21 AM P&G cuts FQ4 guidance, citing slower-than-expected growth in developed markets and forex fluctuations. P&G forecasts adjusted EPS of $0.75-$0.79, vs. prior guidance of $0.79-$0.85 and consensus of $0.82. Net sales to fall 1%-2% vs. +1%-2% prior. For FY 2013, P&G predicts a percentage increase in profits of flat to mid-single-digits. (PR)"
Above: 3-year chart of PG (click to enlarge). Courtesy of Etrade.
As one can see, the $60 price level has held very well for Procter & Gamble for the past several years. Any time the price action of the stock has violated that level, a sharp, or at least modest rally ensued. This is one of the reasons I believe an upward move is in store for PG.
People may rant and rave about how PG is headed lower and lower, but I think that this is a name for both the trader and investors. While many times these two very different "market players" do not share an equal interest, I believe PG is an exception, allow me to explain.
The trader is looking for short term moves. That may be defined as five minutes or five months, depending on the trader. Clearly this move will take a little while to play out, but it's safe to say the trader is not investing in the company, but rather riding the coattails of the stock's price action. A run past $62.50 is not absurd, especially if the S&P continues to rally.
The investor is not looking for rapid price action to make a quick buck. Instead, they're looking for good entry points in solid names. Investors want to see a stout company with a healthy dividend. Did I mention that Procter & Gamble yields more than 3.5% and has continually held and raised their dividend over the years? This company is usually in the "Top 5" for any long term dividend investor. Investors should take this opportunity to grab some PG while the shares are this low, whether that's starting a position or adding to a previous one.
No one knows what lies ahead in the market. Earnings are likely going to be weak across the board and the global economies are going to be squeezed. I'm not suggesting to "back up the truck" on this one, but I am saying $60 for a name like Procter & Gamble is relatively safe. We get one heck of a yield that's going to pay us to wait. Long term investors are already playing that game, and traders are just looking to make a buck. In the end, people are still going to buy Pampers and Tide. For a look at the rest of Procter & Gamble's brands, click here.
Disclosure: I am long PG.