For many, investing in the stock market is a great way to make some serious money—as long as share prices go up. But just as stock prices can rise, so too can they fall and, in many instances, really fast, proving painful for the average investor. It is this very volatility that often creates both investment growth opportunities and potential losses. Indeed, equities can be as risky as they are rewarding. While downside risk cannot be completely avoided, as virtually all equities experience some degree of volatility, it can be mitigated, mostly by choosing “safe” stocks. Dow component Procter & Gamble (PG - Free P&G Stock Report) is one such issue.
Most people around the world are fairly familiar with the products made by the global branded consumer packaged goods giant. From toiletries and cosmetics to laundry care and baby care, P&G’s products occupy plenty of store shelf space. Its goods are marketed and sold in more than 180 countries. In fiscal 2013, foreign operations made up 61% of sales and 44% of earnings. This, and other descriptive information, can be found in the Business Blurb section of the Value Line page.
From an investment perspective, P&G stock may not seem overly inspiring at first blush. In fact, from the Price Chart, we see that the equity has been largely stable over the past decade, notwithstanding occasional dips. Since the stock is not known for strong price momentum, it’s not surprising that its Timeliness rank (found in the Ranks box in the top left corner) is just a 3 (Average), as per our latest report. The rank, which measures an equity’s performance against that of the broader market for the coming six to 12 months, is based on a scale of 1 (Highest) to 5 (Lowest). Yet, while the lack of strong year-ahead price action may be a turnoff for near-term players, the issue seems well suited for patient, risk-averse investors who want to enjoy a good night’s sleep.
Indeed, a number of attributes make P&G a standout for the conservative-minded investor. Especially notable is its top-notch Safety rank of 1. Like Timeliness, this ranges from 1 to 5 and can be found in the Ranks box. The rank suggests PG shares have considerably less risk and are, therefore, much safer than the average issue under Value Line’s review. The Beta coefficient, located in the same section, further supports this. At 0.65, the issue’s volatility is well below that of the broader market (where 1.00 = the market).
The Ratings box, at the bottom right-hand corner, contains additional key metrics that highlight the outstanding risk profile here. In fact, the blue chip earns stellar marks throughout, with the exception of Price Growth Persistence, which measures a stock’s historic tendency to show persistent price growth compared to the average equity. Specifically, the company gets a superior grade of A++ for Financial Strength, taking into account cash on hand and debt level, while the stock scores a perfect 100 for Price Stability, which refers to the degree of stability exhibited by the equity’s price over a period of time. Incidentally, both of these metrics influence the Safety rank. Earnings Predictability is at 100, as well, implying that the company has no trouble meeting earnings forecasts.
In the meantime, the Dow member also sports a solid yield, as shown in the Top Label along the upper section of the Value Line page. At 3.0%, the expected return on the equity from cash distributions over the coming 12 months means investors can earn some decent income. Long-term appeal, on the other hand, could be better. For this slow and steady performer, double-digit top- and bottom-line growth is unlikely over the next five years, as the Annual Rates section illustrates. Still, the equity’s annual total return prospects (Projections box) on a risk-adjusted basis are not bad, when factoring in price-appreciation potential and prospective dividend increases over the 2017-2019 time frame.
Summing it all up, we think P&G shares would be a respectable fit for those with a risk-averse buy-and-hold strategy. Traditionally a defensive stock, many investors flock to it in times of economic weakness, for the reason that the company’s products are essentially always in demand by consumers, regardless of the macroeconomic situation. Although not a high-flyer, this blue chip would undoubtedly add stability to nearly any portfolio, and holders would certainly rest easier. Analyst Erik A. Antonson concludes by saying in the Commentary “this high-quality issue is a good pick for conservative accounts”.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.