Over the years, Peter Lynch has taken some flak for suggesting that investors looking for ideas should open up the fridge and make a list. Some of that flak wasn't entirely fair, because Lynch did caution that this maxim was merely a starting point. In fact, if you open your fridge and cupboards today and make a list of ideas to invest in, you'll do reasonably well.
A number of well-known companies such as Procter & Gamble
|
Company |
Trailing P/E |
Forward P/E |
|---|---|---|
|
Procter & Gamble |
20 |
18 |
|
Clorox |
21 |
19 |
|
Church & Dwight |
19 |
15.5 |
|
Colgate-Palmolive |
24.5 |
19 |
The P/Es in the table highlight that these companies are trading at reasonable valuations, not incredible values. In fact, as colleague Tim Hanson mentioned, some of these companies are expecting soft earnings. Given the merely reasonable valuations, and the short-term potential for soft earnings, you might think I've gone mad. I haven't.
There are a number of long-term reasons to keep an eye on all of these companies. In addition to the valuations, most consumer-goods companies carry dividend yields greater than 2%, and should offer healthy dividend growth. In addition, all of them have generated above-average returns for decades. But these companies' most important advantage is the strength of their brands, which allows them to raise prices if needed. As signs of inflation become more and more obvious, this ability to maintain margins over the long term will become more important.
On the other side of the equation, some of the largest retailers that sell consumer-goods' companies products are also relatively affordable. An argument can be made that Wal-Mart
Overall, I think Wal-Mart, Procter & Gamble, and Church & Dwight -- of Arm & Hammer fame -- are the most attractive right now. That said, they're all worth watching. A 10% drop in price for any one of them would create an attractive opportunity for investors to build a position in a high-quality company.
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At the time of publication, Nathan Parmelee owned shares in Costco but had no financial interest in any of the other companies mentioned. Costco is a Stock Advisor recommendation. The Motley Fool has an ironclad disclosure policy .
