What's Ahead for Procter & Gamble in 2012?

The new year is here and that means that it's the perfect time to sit down with some of the stocks you own -- or, perhaps, are thinking about buying -- to figure out what 2012 may bring.

Today I'm going to take a look at Procter & Gamble (NYSE: PG  ) , the global consumer-goods giant that managed to edge ahead of the rest of the market in 2011. Could 2012 bring even more gains for investors? Let's dig in.

The tale of the tape

Market Cap $181 billion
Dividend Yield 3.2%
Trailing Price-to-Earnings 16.7
Forward Price-to-Earnings 15.3
Expected Five-Year Growth 9%

Source: S&P Capital IQ.

The keys for 2012
Investors will obviously want to keep an eye on all facets of P&G's business as it forges ahead, but I think there are three areas that deserve extra focus: the global economy, commodity prices, and the stock's valuation.

The first focus point is really a no-brainer. If the economy is weak, it logically follows that consumers may cut back on purchases like MACH3 razor blades, Duracell batteries, even Crest products. Don't worry, I'm not suggesting that people are going to stop shaving or brushing their teeth -- rather, they may cut back on higher-end product offerings and extras like tooth-whitening products, or even opt for private-label products.

This isn't a P&G-only problem: Competitors like Clorox (NYSE: CLX  ) , Colgate-Palmolive (NYSE: CL  ) , and Unilever will face the same pressures. And while these companies as a group may have to beat back encroaching private-label brands, they still have to effectively compete with each other as well.

In the meantime, P&G, along with its competitors mentioned above, have been juicing their growth rates by expanding their reach into emerging markets. The slice of P&G's sales that came from outside the U.S. expanded from 62% in fiscal 2010 to 63% in fiscal 2011. And if a 1% change doesn't sound like much to you, consider that when we're talking about nearly $83 billion in revenue, that change represents hundreds of millions of dollars. Clorox's international revenue share increased from 20% to 21% over the same period, and while Colgate's share outside of North America stayed roughly the same between 2009 and 2010, it takes in less than 20% of its sales from that region. Because of the size of the developed markets, that should probably be investors' primary concern, but continued robust growth in those markets could help offset some weakness in the U.S. or Europe. 

Hardly disconnected from the broad economic concerns is the damage inflicted by rising commodity costs. If the simple profit math for P&G is product price minus input costs, then rising input costs can be expected to crimp the bottom line.

The beauty of owning a company like P&G is that its strong brands give it more power to raise prices to deal with these higher costs. However, in a tough economy that becomes a tougher proposition because raising prices may just give customers the excuse they need to trade down or buy from a competitor.

As with the economy above, this is a challenge that's impacting P&G's competitors as well, so at least it's not at a comparative disadvantage. And fortunately for the entire sector, recent price hikes appear to have been relatively well received and commodity prices appear to be moderating to some extent.

Finally, investors with their eye on P&G should keep a watch on the stock's valuation. Currently, I don't find the stock's valuation particularly appetizing. It's a fair price, and one worth holding, but not one that encourages me to buy. However, Mr. Market has a tendency to do silly things and I wouldn't put it past him to put P&G on sale at some point.

The one number I love
I don't own P&G stock, but I have rated it an outperformer in my Motley Fool CAPS portfolio -- and I plan to keep it that way. With strong brands and a very dependable business, this is a stock that I don't see giving investors many sleepless nights.

And while the capital gains on P&G's stock may not have been particularly eye-catching in 2011, investors don't want to overlook the fact that the stock pays a 3.2% dividend. Of course P&G isn't the only great dividend payer you can buy. You can find a bunch of other high-quality dividends in The Motley Fool's special report "Secure Your Future With 11 Rock-Solid Dividend Stocks."

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook.

The Motley Fool owns shares of Clorox. Motley Fool newsletter services have recommended buying shares of Unilever and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (4) | Recommend This Article (3)

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 January 19, 2012, at 4:06 AM, misbhavin wrote:

    Wait for the news report 'P&G lays off 2300 American workers..'

    Not because the company is 'suffering.' Once again, corporate America deciding the bottom line just isn't fat enough.

    When news gets out, I hope American consumers will vote with their wallets, I know I will. As will most of the 2300 people they just gave pink slips to. Americans complain about the greediness of these big corporations ~ laying off loyal employees just to make shareholders happy ~ but these companies will keep getting away with it until WE the PEOPLE stop buying their crap.

    Unilever makes a lot of good products, too...

    Snuggle.. Dove..

  • Report this Comment On January 19, 2012, at 4:06 PM, shelldoll99 wrote:

    Procter & Gamble just let go of all their professional sales merchandisers across the country yesterday and announced it via conference call. 1-18-12. They will out source the work to Acosta and other brokers. This will begin in March. May be good for budget initially, but not so sure about long term going with a broker that reps several brands and companies. Probably won't be so dedicated as an actual P&G employee.

  • Report this Comment On February 02, 2012, at 11:11 PM, goalie37 wrote:

    I agree with your estimate that the stock is only fairly valued. The only reason to buy at this point would be if you planned on owning the company for a period of several years.

  • Report this Comment On February 05, 2012, at 11:06 AM, TMFPennyWise wrote:

    I want to add this link to an article covering CEO Bob McDonald talking about P&G growth in emerging markets. It appeared in the Cincinnati paper this morning (2/5/2012) and on Cincinnati.com. It covers a lot about P&G plans for growth in 2012:

    http://communitypress.cincinnati.com/article/AB/20120205/BIZ...

    Surprisingly (to me) P&G plans to build about 15 new plants worldwide in the next few years and only one of those will be stateside. This change is much more aggressive in terms of world wide expansion than I assumed P&G would be.

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