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Better Buy: Procter & Gamble or All 30 Dow Jones Stocks?

By James Brumley - Updated Mar 28, 2021 at 11:34PM

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The market's rising tide is no longer lifting all boats, and many of them may start sinking again. Time to play a bit of defense.

Ever heard the phrase, "It's a stock picker's market"? It's admittedly used too much, and too often used incorrectly. But, it's not a meaningless cliche. There are times when it makes sense to simply bet on the broad market by investing in an index like the Dow Jones Industrial Average. Other times, it pays to pick individual stocks.

We're entering a stock picker's market, if we're not in one already. And, given that backdrop, fans of blue-chip stocks would do well to buy shares of Procter & Gamble (PG -2.47%) before picking up anything else. It's uniquely positioned to hold up well in this environment.

A green check mark next to a red X.

Image source: Getty Images.

Seeking out safety

Be wary of trying to time the market. It's extremely difficult to do correctly, and usually will do your returns more harm than good.

On the other hand, it would be naive to ignore the fact that the Dow's 80% rally from last March's low has left the index fundamentally overvalued.

As of the latest look, the Dow Jones Industrial Average is priced at 33.1 times its trailing earnings, nearly double its year-ago figure of 17.6. And the Dow's projected forward P/E of 21.4 is still above its long-term norm for that metric. Wall Street may not be due for a crash, but such buoyant valuations work against the market as a whole. A correction -- even a slow one -- seems more likely than not. And, given that three out of four stocks typically move with the market tide whether or not they deserve to, merely holding bellwethers won't shield you from any weakness.

It's not impossible to find those one-out-of-four companies capable of bucking the trend, though. You just have to identify the ones most apt to fall into favor when most other stocks are falling out of it. Safety, reliability, and stability become particularly important in such environments. Procter & Gamble offers all three.

Think about it. Consumers may skip a trip to the mall or postpone the purchase of a new car when things turn economically tough. But, people typically don't stop buying things like diapers, razors, and detergent. And those consumer staples are what P&G sells.

Perhaps more important, we already know that Procter & Gamble's share price isn't closely tethered to the broad market's performance.

A low-beta stock

If stock-picking theory just isn't your thing, no sweat. Just know that P&G shares are mathematically less likely to be influenced by the market's tide, and skip ahead to the final section below. If you're on the constant hunt for an edge in your investing, however, consider this.

"Beta" is the term used to describe how well or how poorly a particular stock's action correlates with that of a major index -- usually the S&P 500. If a stock has a high beta (above 1.0) it generally moves in the same direction as the market, but even more so. A low beta (below 1.0) means that the stock ebbs and flows with the S&P 500, but less dramatically. And if a stock's beta is 1.0, it rises and falls precisely in sync with the index -- no more, and no less.

Of the 30 stocks that make up the Dow Jones Industrial Average, Procter & Gamble's beta of 0.41 is the lowest. That means it's the least likely of them to be impacted by any market-wide weakness.

That's not to say it would be impervious to rampant selling. While the correlation is weak, there's still a correlation. If the market does hit an unexpected macroeconomic headwind that frightens investors, however, that scenario will likely prompt fresh decisions to seek out the reliability that only consumer staples businesses or utility companies can provide. We have to think at least a little strategically, pinpointing potential changes from investors' current bullish profile.

Not etched in stone, but certainly penciled in

There are never any guarantees when it comes to the market, of course. Stocks as a whole may continue to defy the odds. Or we might learn something troubling about Procter & Gamble that undermines the stock anyway.

Investing, though, is mostly about identifying trends and managing risks. Last year's big trend was a stimulus-driven rebound that lifted almost all stocks. In 2020, the high-risk move would have been to not participate in any of that rally. That trend seems to have run its course though, with the risk of a broad sell-off is now greater than the risk of missing out on more upside.

It certainly wouldn't hurt to start adjusting your portfolio accordingly. Blue-chip P&G is an easy way to do so with a name that's paying a decent dividend in the meantime.

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The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$141.46 (-2.47%) $-3.58

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