A Foolish Baby Shower: Procter & Gamble

My grandfather worked for Procter & Gamble (NYSE:PG) his entire career. I can still remember that his car always smelled like soap, and that he had no tolerance for the consumption of non-P&G brands. My poor Mom would get the occasional lecture if he found a rogue tube of Colgate toothpaste in our medicine cabinet or a traitorous jar of Skippy in the cupboard.

Habits ingrained in early childhood die hard; today, I still loyally buy Procter & Gamble products. I've also owned shares in the company for more than 10 years. So it's no surprise that P&G would be the one stock I would buy and put aside for my baby daughter's college education. In fact, I've already earmarked a few shares for her education fund.

Obviously, personal reasons play a part in the choice, though one could make a compelling case for P&G based solely on the company's operating performance. As the following table demonstrates, few stocks have performed as well over the long term as Procter & Gamble:

Annual Returns For Selected Blue Chips

With 22 "billion-dollar brands," the company produced record sales in 2005. Over the past 10 years, P&G has delivered an average return on capital -- a useful indicator of management effectiveness -- of 18%. Clearly, this company is built to last. In fact, P&G was one of the companies featured in the seminal business book entitled Built to Last: Successful Habits of Visionary Companies.

One of P&G's competitors, Colgate-Palmolive (NYSE:CL), might also be an interesting selection in the consumer-products area. Its 18-year annualized return comes in at 18.58%, and its average return on capital over the past 10 years was 23.8%. Currently, Colgate has a long-term debt-to-equity ratio of 216%, compared with P&G's more modest 47.3 %. While Colgate has also delivered strong results over the past two decades, I still prefer P&G for the next two.

For one thing, P&G's foundations have just gotten a lot stronger. Warren Buffett, whose holding in Gillette has now been transformed into an almost $6 billion stake in P&G, has called the merger between Gillette and Procter & Gamble a "dream deal" that will create the greatest consumer-products company in the world. The table above shows that P&G has been able to trounce the market over the past 18 years. I'm confident that this trend will continue over the next 18, which will be good news for my baby girl.

When I was growing up, three institutions dominated my family life: the Catholic Church, the Boston Red Sox, and Procter & Gamble (not necessarily in that order). My daughter has already been christened and has a few shares in P&G set aside for her education. All that remains is a trip to Fenway Park, where she can begin her own love/hate relationship with the old-towne team.

A joyful abundance of Foolishness awaits your little tyke. Click here to see what other financial gifts are in our Foolish baby shower basket for your littlest loved ones.

John Reeves owns shares in Procter & Gamble and Johnson & Johnson. Colgate-Palmolive is aMotley Fool Inside Valuerecommendation. The Fool has a disclosure policy.