Why Procter & Gamble Is a Buy

Manufacturing is a tough business. But some companies have built major competitive advantages in that niche.

In this video from "The 5" on Motley Fool Live, recorded on Oct. 4, Fool.com contributors Brian Withers and Demitri Kalogeropoulos discusses why Procter & Gamble (PG 1.52%) is a manufacturing giant worth investing in.

Brian Withers: We're focusing a little bit on the question here on manufacturing. Do you have a favorite business that relies on manufacturing to make money? Then the part 2 of that question is, [laughs] what country are their manufacturing facilities and certainly what is the business? Demitri you are up first.

Demitri Kalogeropoulos: Sure, yeah. When I think manufacturing giant and titan, someone who has got this thing down, I just think of Procter & Gamble. That company just popped in my head. Of course that's a global business and everyone's heard of them. You've got dozens perhaps, of their products in your house right now, just to name a few of the things of it. This company basically has the number 1 or 2 market share in, like I said, dozens of products that people use around the world every day.

One of their big categories is laundry, detergent, fabric care and then we got Crest toothpaste, things like bounty paper towels, which I believe, if I remember right, I think they account for more than 40 percent of global sales of paper towels; that's an amazing statistic.

Pampers, diapers, I think that's their second biggest brand globally. Obviously, that company can't have just one country of manufacturing. They have a global manufacturing network, massive supply chain. But manufacturing is a huge emphasis of theirs because they have to be able to innovate. Packaging is actually one way that a company like that can stand-out from competitors and it's a big one. They spend a lot of time on that, making an easy packaging and the whole supply chain adding value wherever they can. P&G is an interesting stock to follow. They were doing really well before the pandemic.

They had a rough go around the 2012-2015 area there, but they had turned the business around. They were growing their organic sales a lot quicker for three or so years, heading into the pandemic. Then since the pandemic, they've just expanded that. They've built on those wins. They are growing more quickly. Their operating profits are expanding and they've cut many billions of dollars out of their expense burden and a lot of that in the manufacturing zone in the supply chain. That's showing up in their profitability. Their operating margin, I checking today is 24% of sales compared to 14% for Kimberly Clark, which is a competitor they compete with Pampers.

They've got the Huggies brand diaper, for example, and a bunch of other products. P&G is able to still report these really great earnings numbers because of that efficiency and their innovative launch on a bunch of these products. The company is going to be reporting earnings in late October. I'll be watching that.

They're kicking off a new fiscal year. The stock I have been liking for a while now. It's been trailing the market for the past year, which I guess, Wall Street is more interested in other splashier growth areas.

But this is a dividend aristocrat, great cash flow, market-leader, really great profits, and an opportunity to expand on those margins.

Maybe in late October they can change that investing story a little bit and attract more people into the stock. It's a great stock in any case.