The Dow Jones Industrial Average holds 30 stocks that roughly represent the broader U.S. economy. There were some big winners to close out 2023, with Walgreens (WBA 0.57%) leading the pack up a huge 30% in December.
But the two biggest disappointments in December were Procter & Gamble (PG -0.78%) and Disney (DIS -0.04%), which both lagged the index's 4.5% gain and were both in the red for the month. Is that an investment opportunity?
Procter & Gamble isn't cheap, but it also isn't expensive
Procter & Gamble's shares fell roughly 4.5% in December. That's a big nine percentage points behind the Dow's gain. It caps a year in which the stock basically went sideways, down roughly 3% for the full 12-month span. Some might consider that dead money, but there are some things to like about the consumer staples giant.
For starters, P&G owns some of the most iconic consumer brands in the world. It holds leading positions in most of the niches in which it operates, often at the high end of the price range. It has the financial strength to invest heavily in research and development, marketing, and distribution, making it a very important partner for retailers. There's no reason to believe that it is about to give up its place as a key pace setter in the consumer staples space.
Meanwhile, Procter & Gamble has increased its dividend annually for over 65 consecutive years, making it a highly elite Dividend King. The yield is roughly 2.5%, which isn't huge but is about middle of the road, historically speaking. Meanwhile, the price-to-sales and price-to-earnings ratios are a bit below their five-year averages, while price-to-book and price-to-cash flow are a bit above. It doesn't exactly look like P&G is cheap, but it also doesn't seem overpriced.
For investors who want an industry-leading company with a proven track record of paying reliable dividends, Procter & Gamble is probably worth a closer look. Just go in knowing that you are paying full fare.
Disney has a lot of work to get done
Disney just reinstated its dividend, which it suspended in the early days of the coronavirus pandemic. That cut made complete sense, given the importance of the company's parks, cruise ships, and movies (shown in movie theaters) to the top and bottom line. The world has learned to live with COVID, so now those businesses are normalizing and the dividend is back.
Only the investment story here isn't that simple. In fact, 2023 was a very volatile year for the stock, which was up more than 25% in the early months, but ended the year up just 4% following a brief dip into negative territory. The roughly 2.5% drop in December was simply Disney limping out of a hard year.
There has been a lot going on at the business. Some segments have, indeed, been fairly strong, notably the parks and cruises. But there have been a number of problem areas, like movies and traditional television. Even streaming services have been something of a mixed bag, with improving performance showing up as smaller losses. That means the business is still a net drag. And the company is dealing with a number of activist investors who aren't happy even after the company brought back former CEO Bob Iger.
From a valuation perspective, Disney's price-to-sales ratio, price-to-book value ratio, and price-to-cash flow ratio are all well below their five-year averages. Price-to-earnings is higher, but the five-year average is biased high because of losses suffered during the pandemic. So Disney looks relatively cheap, but there are still material issues to consider business-wise. For example, traditional television is faltering, and streaming, which is expected to replace it over time, isn't yet profitable. The movie division has seemingly lost its way, an admission from Iger, and the planned slate of movie releases needs to be revamped.
It probably wouldn't be a massive mistake to buy Disney, but it looks like a turnaround story right now. More conservative investors will probably want to tread with caution and, perhaps, await further signs of progress before jumping aboard.
The final answer is maybe
It is hard to suggest that either P&G or Disney are screaming buys. P&G is a well-run company trading at what seems to be a fair price, which might make it attractive for dividend investors worried about income consistency over valuation.
Disney is an iconic media company that's fallen on hard times. There are a lot of cooks in the kitchen right now, including the returning CEO and activist investors seeking changes of their own. The stock appears cheap, but there's a reason for that, and it might be advisable for risk-averse investors to watch from the sidelines for a little bit longer before investing.
