Dueling Fools The Procter & Gamble Gambit
The Bull Argument

By Paul Larson (TMF Parlay)

Chances are that you will use at least one Procter & Gamble (NYSE: PG) product today. Brush your teeth with Crest? Rinse with Scope? Use Ivory soap or Head & Shoulders shampoo? Drink some Folgers? Snack on Pringles? Feed the dog Iams? Change the baby with Pampers? Squeeze the Charmin? Launder with Tide?

While you may think I'm being long-winded about P&G's product list, the brands above represent a small fraction of what the company makes and sells. Quite simply, Procter & Gamble is the king of brand marketing. The company practically invented the concept of building a brand, and it's no mistake that an enormous number of the world's largest household names are within the company's portfolio.

The company's extensive list of exceptionally strong brands is the first reason I like P&G. Decades of building these brands has created an enormous competitive advantage for each of the company's products as well as for the company as a whole. Competitors can try to copy P&G's products, but the brand strength is nearly impossible to replicate.

I also like the fact that P&G has a long history of innovation. It's interesting to note that the company is the fourth most prodigious company in the nation when it comes to patent grants. The company's new Dryel home dry cleaning kit and the Swiffer Sweeper system are just two of the most recent innovations to come from within the walls of P&G.

Of course, P&G is not one of these sexy "new economy" stocks that are all the rage. But what it lacks in hypergrowth, it more than makes up for with stability. No matter how the Internet affects our lives in the coming years, there are some things that will not change. People will still need to buy laundry detergent, toilet paper, shampoo, and toothpaste -- and P&G will be there supplying a great percentage of each of these markets.

P&G may actually benefit quite nicely from the Internet's continued growth, even if mrclean.com never makes the Media Metrix Top 50. One of the greatest promises of the Internet is B2B e-commerce. In a nutshell, B2B should greatly lower manufacturing and procurement costs for businesses across the board. As one of the absolute largest purchasers of raw commodities and also as one of the largest suppliers to retailers like Wal-Mart (NYSE: WMT), P&G is positioned quite nicely to reap the rewards of B2B.

One of the great things about P&G today is its stock is trading at a very reasonable valuation. After some worries about the company's short-term earnings growth came to the surface this spring, Wall Street chopped over half of the stock's value away. At this writing, the company is trading at less than 25x trailing earnings and roughly 17x next year's forward profit estimates. For those looking for investment income from dividends, the stock also now yields 2.5%.

Keep in mind these cheap valuations are tagged on a company that has a long, long history of consistent profits and growth. Sans onetime charges related to restructuring the company, P&G increased its bottom line (as well as its dividend payout) each and every year over the past decade.

In 1990, the company earned $1.6 billion in bottom-line profits. Last year, the total was up to $4.1 billion. Even with the onetime charges, P&G has earned a cumulative $23.5 billion over the past decade. For comparison's sake, Microsoft (Nasdaq: MSFT) earned "only" $22.9 billion in the same period. P&G is huge, and P&G is profitable.

P&G is one of the nation's absolute best marketers and innovators when it comes to consumer products. It is one of the bluest of the blue chips that is now trading at a cheap price relative to its long-term prospects. It's well worth taking a closer look at.

The Bear Argument »

 This Week's Duel

  • Introduction
  • The Bull Argument
  • The Bear Argument
  • The Bull Rebuttal
  • The Bear Rebuttal
  • Vote Results
  • Flashback: The Procter & Gamble Gambit

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  • Procter & Gamble Discussion Board
  • Procter & Gamble Snapshot