Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors counting on a significant discount to Procter & Gamble stock are unlikely to be satisfied. While the broad market fell hard in 2022, and many growth stocks hit a huge sell-off, P&G lost just 7% for the year. The stock is down about the same amount from the all-time high it hit at the beginning of the year.
Does this modest price discount mean that investors should abandon the idea of investing in the stock of this consumer sector giant, especially if they fear that a recession will lead to a decline in consumer spending in 2023? Let's take a closer look at why you might still want to buy P&G stock right now.
There are a number of compelling reasons why P&G stock did not plunge along with the broader S&P 500 index in 2022. The recent sales growth has been exceptional. In the fiscal year 2022, organic sales grew 7% and exceeded management's original forecast for the year. That growth rate was maintained in Q1 of fiscal 2023, which ended in late September.
Of course, P&G is not insured against the price and demand pressures that most consumer-oriented companies experience. Sales declined last quarter, meaning all of the revenue growth was driven by price increases. The company also reported a decline in profitability.
But P&G is still gaining market share in an industry reputedly resilient to economic downturns and recessions. The fact that price increases haven't scared off many buyers in 2022 is also a good sign for the short-term sales outlook.
Buying P&G stock also gives investors some important financial assets. The company is among the most efficient businesses, and its cash flow is consistently high. Management expects strong earnings in fiscal 2023, even though it estimates that rising costs and a stronger U.S. dollar will reduce earnings per share by 27 percentage points.
In addition, P&G is able to convert nearly all of its earnings into free cash flow, giving the company ample resources to draw on even as debt rises due to rising interest rates. Finally, the company's profitability surpasses that of competitors such as Kimberly-Clark, indicating a sustainable competitive advantage.
P&G is preparing for slower growth in the fiscal year 2023, as organic sales growth will be between 3% and 5%, compared to 7% in the fiscal year 2022. Profits are likely to decline slightly, mostly due to temporary difficulties such as currency exchange rates.
This type of stability is valuable in any market, but especially in the volatility that investors are seeing now and trying not to be hurt by it. P&G stock can be a steadying force in your portfolio during economic downturns. This is due in part to its dominant position in many consumer staple niches, as well as its status as a dividend stock. P&G has raised its dividend every year for decades and is likely to do so again this spring.
Of course, you can buy this company's stock in consumer staples at a lower price. Kimberly-Clark stock is valued at 2.3 times annual sales compared to P&G's valuation of 4.8. But the company has earned that premium by providing investors with stability and growing returns under a variety of sales conditions. It is likely to demonstrate these valuable qualities again this year and delight investors.
As long as the price is above 141.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 149.67
- Take Profit 1: 155.00
- Take Profit 2: 160.00
Alternative scenario:
If the level of 141.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 141.00
- Take Profit 1: 138.00
- Take Profit 2: 135.00
