Investors looking for a huge discount on Procter & Gamble (PG 1.52%) stock will be disappointed. While the broad market fell hard in 2022, and many growth stocks went on sale, P&G shed just 7% for the year. Shares are down by roughly the same amount from the all-time high they reached earlier in the year.
Does that modest price discount mean investors should pass on this consumer staples giant, especially if they're worried about a recession crimping consumer spending in 2023? Let's take a closer look at why you still might want to buy P&G stock right now.
You get what you pay for
There are good reasons why P&G stock hasn't dropped along with the wider S&P 500 in 2022. Sales growth has been exceptional lately. Organic sales jumped 7% in fiscal 2022 and passed management's initial outlook for the year. That expansion pace held up in P&G's fiscal 2023 first quarter, which ran through the end of September.
Sure, P&G isn't immune to the cost and demand pressures that have been impacting most consumer-focused businesses. Sales volumes slipped last quarter, meaning all revenue growth came from rising prices. The company also reported weaker profitability.
But P&G is still winning market share in an industry that's widely seen as recession resistant. The fact that price increases didn't deter too many shoppers in 2022 bodes well for its short-term sales outlook, too.
Stability in rocky times
Investors also get some major financial assets when they buy P&G stock. The company is among the most efficient businesses you'll find with cash flow consistently strong. Management is targeting substantial earnings in fiscal 2023 despite what it estimates as a 27-percentage-point hit to per-share profit gains from rising costs and the stronger U.S. dollar.
P&G is on pace to convert nearly all of its earnings into free cash flow, too, giving the company ample resources to use even as debt becomes more expensive thanks to rising interest rates. Finally, its profitability trounces rivals like Kimberly-Clark, indicating sustainable competitive advantages.
Data by YCharts.
Rising income
P&G is bracing for slower growth in fiscal 2023 as organic sales gains land between 3% and 5% compared to 7% in fiscal 2022. Earnings will likely decline slightly, mainly thanks to temporary challenges like foreign exchange rates.
That type of stability is valuable in any market but especially through the volatility investors are seeing right now. P&G stock can be a steadying force in your portfolio through economic slumps. That's partly because of its dominant hold on many consumer staples niches but also due to its dividend stock status. P&G has raised its dividend every year for decades, and it is likely to do so again in the spring of 2023.
Sure, you can get exposure to its consumer staples industry at a cheaper price. Kimberly-Clark stock is valued at 2.3 times annual sales compared to P&G's valuation of 4.8. But the company has earned that premium by giving investors stability and rising income through a wide range of selling environments. It will likely deliver those valuable attributes again in 2023.
