Should You Buy the Dow — Procter & Gamble

Today, were looking at Dow Jones Industrial Average component Proctor & Gamble
(NYSE: PG ) . The consumer products company produces some of the most famous
brands in the world. P&G offers beauty products and skin care products including
the brands Head & Shoulders, Olay, Pantene, Wella, Braun, Fusion, Gillette and
Mach3 brands. It also provides health care products like Always, Crest and
Oral-B brands; snacks and pet care products under the Pringles and Iams brands;
fabric care and home care products consisting under the Ace, Ariel, Dawn, Downy,
Duracell, Gain, Tide and Febreze brands; and baby care and family care products
under Bounty, Charmin and Pampers brands. The company is truly global, hocking
its wares in some 180 countries. The key driving factors for Proctor & Gamble
are competition and the economy. Now, P&Gs diversified product line insulates
the company to a certain extent against economic downturns, because many of the
products are consumer staples. However, the competition now offered by grocery
stores private labels has become an increasingly vexing problem. Nevertheless,
P&G is so gigantic that even in tough times it produces big profits $13.4
billion in FY 2009 when the economy was having its toughest time. Procter &
Gambles financials are solid. Dont be perturbed by the $22 billion in debt. Its
only being carried at around 4%, and P&G has $2.8 billion in cash. Trailing
12-month cash flow was $9.5 billion, so the debt service is no problem, and its
almost twice the amount of free cash flow necessary to pay P&Gs 3.2% dividend.
We generally dont see venerable companies like this have many insider trades,
but there have been four of them totaling about 17,000 shares (both direct and
indirect) during the past two years, all between $60 and $64 per share. Another
confidence booster: Iconic investor Warren Buffett owns 2.5% of P&G. Conclusion
Stock analysts looking out five years on P&G see annualized earnings growth at
9%. At a stock price of $65, on FY 2015 earnings of $6.48, the stock presently
trades at a P/E of 10. That suggests P&G is fairly priced for 2015! Given the
companys recent warning about commodity prices potentially impacting revenues
going forward, and given that the dividend isnt generous enough for retirement
accounts, I dont see any value here. I believe P&G is a sell for regular
accounts. I believe P&G is a sell for retirement accounts. As of this writing,
Lawrence Meyers did not own a position in any of the aforementioned stocks.
Check out Meyers take on other Dow Jones stocks here .