Procter & Gamble's Stock May Have A Hot Start In 2020

Dec. 27, 2019 12:17 PM ETThe Procter & Gamble Company (PG)CHD, CL, KMB, UN16 Comments


  • The stock has risen by more than 36% in 2019.
  • Options betting suggests the stock rises through the middle of January 2021.
  • The stock's valuation appears modestly priced at current levels.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

Procter & Gamble (NYSE:PG) shares have risen by more than 36% in 2019, and some are betting the strength of 2019 will carry over into 2020, with the shares rising another 6%.

Meanwhile, the stock's valuation, although on the upper end of its historical range, doesn't appear to be egregiously priced. It suggests that the equity could climb without carrying a valuation risk, especially when compared to peers.

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Valuation Seems Fair

Shares of P&G currently trade for roughly 23.8 times one-year forward earnings estimates. That is in line with peers such as Colgate (CL), and less than Church & Dwight (CHD) at 26.2. It is, however, more than Unilever's (UN) 19.5 and Kimberly-Clark's (KMB) at 19. It puts Procter's valuation in the middle of the range of its peers.

Additionally, when looking at Procter's historical valuation, it may be at the upper end of the range of 14.5 to 21 from 2015 to 2018. But again, the valuation is not significantly higher than previously guided and appears to reflect expectations for faster earnings growth out of the company. Currently, analysts are forecasting earnings growth of 9.1% in fiscal 2020, followed by 6.3% in fiscal 2021, and 6.4% in fiscal 2022.

Bullish Bets

Some traders are betting that the stock rises further in the weeks ahead too. The $120 calls for expiration on January 15, 2021 saw their open interest levels rise by almost 30,000 contracts on December 27. According to data provided by Trade Alert, the calls traded on the ASK, an indication they were bought, at the price of roughly $12.55 per contract. It means that for a buyer of the calls to earn a profit, the stock would need to rise to around $132.55, a gain of about 6% from the stock's

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This article was written by

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Designed for investors looking to stay ahead of the pack.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I am/we are long UL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results

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