Decline in Procter & Gamble Is Overdone

Includes: DEO, JNJ, KO, PEP, PG, WMT
by: The Moneygardener

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 (NYSE:PG) is down 22% year to date, Coca Cola (NYSE:KO) (10%), Diageo (NYSE:DEO) (19%), Pepsico (NYSE:PEP) (11%), Johnson & Johnson (NYSE:JNJ) (14%), and Wal-Mart (NYSE: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.

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