Investors are warming up to both McDonald's (MCD 0.47%) and Procter & Gamble (PG 0.60%) stocks right now. The two Dow giants outperformed the market in 2022 as Wall Street began to favor stability and dividend income as market volatility spiked.
But which one is the better stock to add to your portfolio today? Let's compare the two blue chip companies, which recently announced updated earnings and sales trends through late 2022.
McDonald's for faster growth
Both companies are expanding sales in a challenging market environment, but McDonald's is faring better on this score. The company just announced accelerating sales growth for the fourth quarter, with comparable-store sales improving to a 12% increase from 10% in the third quarter. Procter & Gamble, meanwhile, has seen its sales gains slow to 5% from 7 %.
Look a bit deeper into the revenue figure, and you'll see more signs of the fast-food giant's relative strength. Its 10% sales spike in Q4 occurred thanks to a balance of 5% higher spending and 5% higher customer traffic. Procter & Gamble, on the other hand, had to rely on price increases for all of its gains. P&G's sales volumes were down 6% in the most recent quarter, while prices jumped 10%.
The profit match-up
Both companies are leaders in their industries when it comes to profitability. McDonald's routinely turns over 40% of sales into operating profit, making it among the most profitable companies on the planet. Procter & Gamble's 22% margin, meanwhile, keeps it well above peers like Kimberly-Clark (KMB 5.51%).
Ironically, P&G has a brighter forecast here. McDonald's has already gained everything it can from moves to convert nearly all of its corporate store base into franchisee-owned units. The company might see slight profit margin declines ahead, too, as inflation continues to push prices up for key ingredients like eggs.
MCD Operating Margin (TTM) data by YCharts.
Procter & Gamble, on the other hand, has already raised prices significantly across key categories like laundry care and beauty products. Those hikes pressured sales volumes through late 2022 but could power a solid earnings rebound as pressures ease this year.
Valuation and returns
Investors are paying different prices for these two businesses. Procter & Gamble has seen its valuation fall to 4.4 times sales from a peak of nearly 6 during earlier phases of the pandemic. It is still valued at a premium compared to Kimberly Clark, which has been growing more slowly and generates weaker profit margins.
McDonald's, meanwhile, is priced at nearly 9 times revenue, near its peak. Investors are paying a high premium for the company that reflects its fast sales growth, strong cash flow, and market-trouncing profitability.
If you're a growth-focused investor, then you'll likely prefer McDonald's stock today even despite that higher valuation. Conservative-minded investors will gravitate toward P&G for its cheaper price and elevated dividend that today is yielding 2.6% annually. The consumer staples giant also plans to deliver lots of cash to investors through stock buybacks, as it has in each of the last five years.
The good news is that both stocks have become cheaper in the last year, and both are likely to generate solid returns for investors who can patiently hold them through the volatility in 2023 and beyond.
