This Week's Duel
Of course, there are some of us who actually welcome situations like this -- times when Wall Street turns minor short-term difficulties into major dramas, punishing stocks far more than warranted. This is just the type of situation that has made the Foolish Four such a profitable investment strategy, and Procter & Gamble fits the large-cap contrarian model to a T.
Regarding some of Bob's arguments, I'm not exactly inclined to declare the practice of branding dead. Price is a major factor in the purchase decision-making process, but it is far from the only one. Where branding comes in is when companies are trying to meld familiarity, perceived product quality, and, ultimately, buying habits. There is a reason people buy the colorful Tide boxes much more often than the cheaper generic detergents. Branding is alive and well, and Procter & Gamble is the branding king.
It also appears that much of Procter's short-term profit difficulties are related to its new products and its expansion plans. It makes a lot of sense that having numerous new products in its portfolio might weigh on profitability. By their very nature, products tend to be the least profitable near launch. This is thanks to heightened marketing expenses needed to alert the public to the new product as well as the fact it takes time to learn how to most efficiently produce and distribute something new. These problems should decrease over time for P&G as its portfolio of established, dominant products continues to expand.
Even with all of the "problems" Procter & Gamble is having this year, the company is still expected to earn $2.95 a share this year and another $3.25 in 2001. Bob is correct in pointing out that growth will be somewhat limited, but this is almost entirely due to the company's enormous size. Regardless, the company is a venerable cash cow with billions of dollars in free cash flow that it can use to both repurchase outstanding shares as well as to pay out increasing dividends.
When all is said and done, Procter & Gamble remains one of the nation's largest and strongest businesses. Buying situations at inexpensive valuations come rarely for such top-shelf companies.
This Week's Duel