Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors often want to secure their investments when major swings occur in the markets; don't blame them. Seeing your portfolio fall 10%, 30%, 50% or more can be extremely frustrating. Blue chip stocks can fall, too, but something is comforting about having your money invested in a company with fundamentals that can withstand the pain of a recession or broader market decline, rather than a company that was supposedly the next scoop.
The household goods conglomerate Procter & Gamble can serve as a telling example of a safe asset. The company has a number of characteristics that make it perhaps ideal for a bear market, but does that mean you should buy it today? Here's what you need to know now.
You may not immediately recognize the name Procter & Gamble; it is a conglomerate that works behind the scenes selling its many brands under its own name. For example, almost everyone knows what Old Spice deodorant is. But look at the back of the label and you see the name, Procter & Gamble. The same goes for 65 individual product brands in 10 categories, from tissue care to dental products.
Combined, these products make up a big business -- Procter & Gamble's annual worldwide sales are about $80 billion. The company's growth won't amaze you: over the past five years, its revenues have grown an average of 4 percent a year. But its products are household necessities that people buy every month, making Procter & Gamble sustainable over the years. The company is the dividend king, paying and raising its dividend for 66 consecutive years, a testament to its longevity.
The company's operating profits have not fallen more than 30 percent from their highs since the early 1990s. There have been many recessions and market crises, but Procter & Gamble keeps going. Hypothetically, imagine the company's business hit a major snag and cash profits fell 50% this year. The company's dividend payout ratio is 64%, and it has $7.2 billion in cash on hand. That's enough to cover dividends without resorting to borrowing.
Let's complicate things even further and assume that the company has to use its balance sheet; with a debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 1.5, there is enough room on the balance sheet to borrow if necessary.
You throw all these hypothetical obstacles in the way of Procter & Gamble having such a slim chance of happening, and the company has an answer for them! You can't guarantee anything in investing, but Procter & Gamble's dividends and long-term record of steady growth make this company a stock you can safely buy and hold for the long term.
Business performance and investment returns are not the same thing; overpaying for a stock, even a blue-chip stock like Procter & Gamble, can be a one-way ticket to disappointing returns. Procter & Gamble recently ended its 2022 fiscal year in late June; earnings per share were $5.81, valuing the stock at a price-to-earnings (P/E) ratio of 22. The stock's median P/E ratio over the past ten years is 23, so the stock is slightly below its long-term norms.
If the stock's valuation stays at that level, investors can expect solid returns; analysts expect earnings per share to grow at about 6% a year for the next three to five years, plus a robust dividend yield of nearly 3%. Yields expressed by one high number are not very high, but you pay for the security that Procter & Gamble brings to the portfolio.
Investors can use an average dollar value strategy by gradually buying stocks over time. You can't go wrong if you buy the stock today, but you can keep buying it if Mr. Market continues to push the stock down. Chasing a stock down is not always a good idea in many cases. However, Procter & Gamble is a proven winner and has established itself as one of the most reliable companies on Wall Street. If the market wants to get irrational, investors should consider acting against the tide and thanking the market for replenishing their investment.
As long as the price is above 126.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 128.82
- Take Profit 1: 131.00
- Take Profit 2: 135.00
Alternative scenario:
If the level of 126.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 126.00
- Take Profit 1: 120.00
- Take Profit 2: 117.00
