It seems like investors can't go a single day without hearing about the macroeconomic situation, one characterized by rising interest rates and the possibility of a recession. High levels of Inflation, in particular, are on everyone's mind. Companies have higher costs, and consumers must stretch their budgets even further.
On the other hand, investors must figure out how to properly position their portfolios, looking for businesses that can provide a solid foundation in times like these. If you're worried about inflation, then consider buying a Warren Buffett holding, Procter & Gamble (PG -0.03%).
All around the house
In its fiscal 2023 third quarter (ended March 31), P&G beat analyst estimates with revenue of $20.1 billion and diluted earnings per share (EPS) of $1.37. This helped push shares higher 3% since the financial release on April 21.
Besides the headline figures, the key highlight of the announcement was that the business's prices for its products were higher by 10% year over year. However, volumes were down 3%. The bright spot, though, was that in the U.S., which is P&G's biggest market, unit volumes were up. On the earnings call, CFO Andre Schulten said that the "U.S. consumer, I think, is holding up well."
Buffett loves companies that have pricing power, and P&G does thanks to its branded products that consumers can't live without. During fiscal 2022, 35% of net sales came from the fabric and home care segment, which includes popular brands like Downy, Tide, Mr. Clean, and Febreze. Another 25% of net sales last fiscal year were derived from the baby, feminine, and family care segment that has brands like Pampers, Bounty, and Charmin.
There are numerous other brands in different categories as well. At a time of high inflation, P&G grew or held its market share in 27 of its top 50 countries and categories, a positive development.
Despite what is shaping up to be a period of ongoing economic headwinds, it's hard to deny P&G's durable business. The products it sells will never go out of style. In fact, the company has been operating since 1837. That goes to show you the wonderfully long product life cycles P&G benefits from. Compare this favorable situation to an internet company, for example, that has to constantly reinvent its products and services to prevent becoming obsolete.
Management raised guidance for the full fiscal year, and is now expecting organic sales to be up 6%, with EPS up 4%. "As we work toward the end of the fiscal year, we are cautiously optimistic," Schulten said.
Boosting portfolio returns
Over the past five years, P&G's stock has risen 114% (as of April 24), easily outpacing the S&P 500's 55% gain during the same time. Even the tech-heavy Nasdaq Composite climbed just 69% in that time. P&G has also outperformed other top consumer staples stocks like PepsiCo, Estee Lauder, and Unilever. The future could look similar, especially since shares are trading below their 10-year historical average price-to-earnings multiple.
In addition to the stock's impressive past price appreciation, investors have been rewarded with a dividend that has increased for 66 straight years. P&G has paid dividends for 132 years, an incredible track record. The current yield is 2.4%.
P&G has also been a longtime buyer of its own stock, another characteristic Buffett seems to love. This fiscal 2023, the business expects to spend about $7.7 billion on stock buybacks. This benefits investors because it increases the EPS figure, which can be a boon for the stock price. What's more, buying back stock could be an indication that the management team believes shares are undervalued. This bodes well for shareholders.
Investors who are seriously worried about ongoing inflation and the possibility of a recession should consider buying P&G stock. It can provide a nice foundation to anyone's portfolio during times of heightened economic uncertainty.
