Have You Sold Your Procter & Gamble Shares Yet?

The market voted yesterday, and the obvious verdict was that it's time to sell Procter & Gamble (NYSE: PG). Year over year, the bottom line was down 12% for the quarter, and sales, general, and administrative expenses went through the roof. The outlook was disappointing. Consumers are treading water. Everything is terrible.

Sell, sell, sell!

Relax, Fool. I'm kidding.

The 3.4% drop in P&G's shares yesterday certainly suggests that some investors were pretty unhappy with the earnings report. And to be sure, it's not ideal to see profits drop -- even if they were down a more palatable 6% when you exclude discontinued operations. But P&G isn't a company that warrants quarter-to-quarter reactions to a few pennies on earnings in either direction.

Zooming in
A closer look at the profit decline shows that it was driven by a near $1 billion ramp-up in SG&A -- much of it in marketing. P&G has been focused on expanding its opportunity in three primary ways: expanding its product portfolio to hit more value tiers, increasing its presence geographically, and improving existing products and moving into complementary categories. It shouldn't be all that shocking that succeeding in those goals would require some extra marketing muscle.

But the dip in P&G's stock also likely shows some of the same concerns that investors have had when it comes to competitors such as Clorox (NYSE: CLX) and Colgate-Palmolive (NYSE: CL). Namely, that crunched consumers are opting for cheaper generic brands -- think mirra beauty products from Kroger (NYSE: KR) or CVS (NYSE: CVS) brand diapers -- over the more expensive branded names from P&G and its ilk.

Is that happening? Probably to some extent. Bloomberg recently published an article outlining what the author referred to as "the new abnormal," where consumers save money by buying generic-brand necessities only to splurge on things like iPads. But I have trouble seeing that being a broad, sustained trend that will legitimately threaten P&G. I'll change my mind when consumers start trading down Coke and Pepsi for RC Cola en masse.

Time to buy?
Analysts currently expect that P&G will grow earnings around 8.5% per year over the next five years. To hit that target, the company will have to see some growth acceleration -- fiscal 2010 growth was 6% and the company expects an 8% bump in 2011. Success in the company's growth road map could provide that extra boost, as would continued improvement in the global economy.

At that rate of growth, P&G's stock looks to be priced pretty fairly today -- not cheap, but not particularly expensive either. It's not a stock that'll likely knock anyone's socks off, but for those looking for some stability and a dividend yield that beats Treasuries, it could be a decent choice.

With a high-quality portfolio of brands, P&G falls into a category of company that both Warren Buffett and I are big fans of.