Many investors try to avoid stocks that are approaching their 52-week highs because it's usually an indicator that the stock is priced too high and may be a riskier option. This scenario is not always the case though, because there are plenty of indicators to use to see if a stock is fairly valued. Also, if a stock is in an up trend, there are some pretty good signals to look for to see if a stock is still worth buying. Procter & Gamble (PG) is a stock that I believe still should be a buy in any pullback below $65 even though its share price has shot up about 15% from June levels.
One indicator that P&G still may be a buy at its current level is that the company has very few short sellers. The current short interest on the company stands at about 0.7%, which is extremely low. This means that investors are unwilling to bet against the company's stock performance. It is a great signal that investors have confidence that this stock is not overpriced and will continue to perform positively.
Another great reason to own P&G stock is because it's a non-cyclical consumer stock. This current market is tough to invest in because certain large cap industrial stocks such as Cliffs Natural Resources (CLF) and John Deere (DE) are being beaten down. In the meantime, technology stocks such as Apple (AAPL) and Google (GOOG) are flourishing. P&G might not be the most high rewarding stock pick, however in a rough economy it will not fall apart. People are always going to need the products for hygiene and eating that P&G provides, even in the worst economic conditions.
P&G yields a terrific dividend of 3.37% annually. If the dividend alone isn't attractive enough then it might make it more interesting to know that on average their dividend grows by 10% each year. In this economy if you can find a money market or savings account that provides anything close to that, let me know.
Some uncertainties that P&G may be facing in the near future include their current situation with their CEO Bob McDonald and investor Bill Ackman of Pershings. Bill Ackman invested a rather large position in P&G recently, which helped to further catalyze the rise in stock price. However, Ackman doesn't really approve of the CEO's job because since McDonald has taken the reigns of P&G, revenue growth has stood at a dismal 11%. The situation is shaky though, and one can only wonder if Ackman will push to bump McDonald from his CEO position and try to promote new management in the company. Through Pershings, Ackman owns over 25% of the company's $7.6 billion portfolio so he certainly has some authority when it comes to executive decisions. Anyone looking to invest in P&G should be aware of this red flag and follow up as the situation progresses. I would refrain from purchasing any more shares until the company has a clear vision moving forward.
P&G is currently about $67 a share, but analysts have valued it at over $69. P&G has a P/E ratio of 21.6 and P/B ratio of 2.92. The non-cyclical consumer sector has an average P/E ratio of 18.8 and P/B ratio of 6.2. P&G can probably hold a higher P/E ratio because it's one of the largest non-cyclical consumer stocks there are, but as far as the P/B ratio states, P&G is slightly undervalued compared to its competitors. Some main competitors include Colgate-Palmolive Company (CL), The Clorox Company (CLX), Kimberly Clark (KMB), Avon (AVP), and Estee Lauder Companies (EL).