Procter & Gamble Stock: Now is not the time to buy (NYSE: PG)
While the macroeconomic and company-specific background is positive, the chart is currently leading. Wait for a new uptrend to develop.
Procter & Gamble is in the consumer staples business:
The Procter & Gamble Company provides branded consumer packaged goods to consumers in North and Latin America, Europe, Asia-Pacific, Greater China, India, the Middle East and from Africa. It operates in five segments: Beauty; Grooming; Health care; Fabric and home care; and baby, woman and family care. The Beauty segment offers conditioners, shampoos, styling products and treatments; and antiperspirants and deodorants, personal cleansing and skin care products under the Head & Shoulders, Herbal Essences, Pantene, Rejoice, Olay, Old Spice, Safeguard, Secret and SK-II brands.
They are – by far – the largest company in this industry by market capitalization.
Consumer staples are less affected by macro factors than consumer discretionary companies; even in a downturn, consumers will continue to buy toiletries and other personal care products. This does not mean, however, that the economic context is unimportant. A stronger economy would increase personal income, which would increase overall spending.
The macroeconomic context is solid. The labor market continues to create jobs:
The total number of settlement jobs (left) continues to rise. Although the pace of monthly job gains has declined (right), it remains positive.
Due to job creation, total weekly wages are increasing, helping to support…
… a sustained pace of retail sales.
Additionally, two sub-groups of retail sales are growing at a higher rate than the norm.
Sales at general merchandise stores (think grocery stores) grew at an above-average rate, as did…
… sales and health and beauty stores.
In many ways, I view (PG) as a self-managed business. What I mean by that is that the company is a pillar of global commerce; its products are firmly embedded in shopping culture around the world. The business will consistently show profits. What I’m looking for in financial statements is proof that management isn’t blowing the finances.
PG is very well managed.
From 2012 to 2017, main income decreased. As you may recall, during this time the company discontinued a number of what it considered “non-essential” brands. Since 2017, revenue has grown at a decent rate for a company of PG’s size and age.
The gross margin percentage has fluctuated around 50% over the past ten years. But operating and net profit percentages have increased – a very welcome development for shareholders.
The company has managed its debt very well.
The table above is taken from the cash flow and income statement. The third line is the amount of cash the company derives from its operations after paying for the investment. A company the size of PG should have enough cash in that line, which it does. Next, I add the total of dividends and interest payments (second row from the bottom) and subtract that total from the row of operations minus the investment. Here I want to be sure that the company has enough cash to pay bonds and shareholders. The bottom row says yes.
So far we have learned that the macro backdrop is bullish and the company is very well managed.
Unfortunately, the stock chart says wait:
6-month PG chart with PG/SPY ratio (top panel); MACD (1st sign below price); Price Percentage Oscillator (2nd panel below price): Chaikin Money Flow (3rd panel below price). From StockCharts.
All three momentum indicators (bottom panel) have given a sell signal and are down. The price chart contains a double top and may print a longer head and shoulders pattern, prices are currently printing the right shoulder.
Fundamental analysis tells us what to buy. This analysis indicates that the macroeconomic context is positive and that the company is well managed. Technical analysis tells us when to buy. This is not the moment. Wait PG.