Better Buy: Procter & Gamble or Johnson & Johnson?

In this Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is a clash of blue-chip conglomerates, Procter & Gamble (NYSE: PG  ) vs. Johnson & Johnson (NYSE: JNJ  ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

 

Factor

Procter & Gamble

Johnson & Johnson

Cheapness

(P/E ratio)

14.8

12.7

Growth

(5-year growth rate)

7.5%

9.1%

Operations

(net margin %)

14.28%

21.26%

Balance Sheet

(debt/equity ratio)

.46

.23

CAPS Rating

(scale of 1 to 5 stars)

5 Stars
5 Stars

Round 1: Cheapness

Advantage: Johnson & Johnson. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren't indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: Johnson & Johnson. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: Johnson & Johnson. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: Johnson & Johnson. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: Johnson & Johnson. A company's CAPS rating is our community's opinion of the stock. Johnson & Johnson has a slightly greater numerical CAPS rating than P&G, even though they have the same number of stars. You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to our CAPS area.

Each of these five rankings need more context -- like, how these companies stack up against key competitors, how they are making inroads in emerging economies, etc. But these basic numbers suggest that Johnson & Johnson is a better buy right now. What do you think? Let us know in the comments section below.

No individual person selected the stocks in this article, so there is no author to disclose an interest in them. Since this article was automatically generated by identifying the stocks loved both by the CAPS community and by buyers in today’s market, it is possible that Motley Fool personnel (and even The Motley Fool itself, through our Million Dollar Portfolio, Motley Fool Pro, and Ready Made Millionaire services), have positions in these stocks. We thought you'd like to know that. You can learn more about The Motley Fool’s disclosure policy here.


Read/Post Comments (5) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 13, 2010, at 2:54 PM, christianmcvey wrote:

    buy both, i did.

  • Report this Comment On July 13, 2010, at 3:10 PM, bflyfish3 wrote:

    I own both of these stocks @ the same price ($50), but think that J&J fell-off-the-wagon when they messed up the OTC recall. I am so disgusted with their conduct (and management @ their McN subsidiary). J&J has lost their reputation of trusted excellence with us parents (hopefully momentarily). Unfortunately, this makes me want to buy J&J while still the stock price is still in its present flunk.

  • Report this Comment On July 13, 2010, at 3:27 PM, senorbum wrote:

    Where are you getting your stats for these? The 5 year EPS growth rates I've seen for PG are closer to 12%. I've checked multiple sources.

  • Report this Comment On July 13, 2010, at 5:50 PM, senorbum wrote:

    Also, I'm finding that net margin of PG is 16-17% depending on if you look TTM or 2009-06.

    AND your caps rating going to J&J makes no sense. P&G has a slightly better ratio in each category predicting beat than it does predicting lag. All-Star, Regular, and Wall Street all favor P&G in caps rating land.

  • Report this Comment On July 22, 2010, at 6:34 PM, capscartor wrote:

    Some of your comparative numbers are off , reflecting a more negative slant on P&G than is the actual case. That said, both companies are quality companies and fit well in my portfolio. J&J's recent lapse in quality control also p[uts this company behind P&G. J&J has hurt the integrity of a number of its brands via taking its eye off TQ, whether relegating the work/decisions to third parties or simply assigning TQ a lessor priority. This is something P&G takes very seriously, as its brands and their positioning/integrity are their life-blood.

    J&J should be better positioned in 2011 for more positive prior period comps. In the interim, the PE difference is quite justified and P&G should be commanding a PE closer to "18".

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Related Tickers

8/29/2014 4:00 PM
JNJ $103.73 Up +0.78 +0.76%
Johnson & Johnson CAPS Rating: ****
PG $83.11 Up +0.08 +0.10%
Procter & Gamble CAPS Rating: ****

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