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Back to the Future for P&G's CEO

By: Minyanville
Posted: 7/12/2013 11:30:00 AM
Referenced Stocks: PG

When investing in stocks, I like to find those with catalysts. Potential catalysts capable of stoking investors' interest include new products, a major restructuring of operations, under-appreciated assets (such as an equity stake in a fast-growing company), the presence of an activist investor, or a management change.

Activist investor Bill Ackman has been prodding Procter & Gamble ( PG ) for change; that helped fuel a management change at the consumer-products giant.

The firm announced Alan Lafley would be the new president and CEO, replacing Bob McDonald. Lafley's name may be familiar to long-time P&G shareholders -- he was the president and CEO of P&G from 2000 to 2009.

This "back-to-the-future" executive switch does give P&G shares another catalyst, although the stock's action since the change in late May has been rather subdued.

It could be that Lafley is just keeping the seat warm for a new successor, which means Wall Street is playing a wait-and-see game with the shares until there is greater clarity on who will be leading the company long term.

Procter & Gamble does have its work cut out for it in the near term. The company's stable of brand names continues to see plenty of competition from lower-priced generics and store brands.

Per-share profits are expected to rise only modestly in fiscal 2013 ending in June to $4.04, up from $3.85 in fiscal 2012.

However, Wall Street is hoping for better growth in 2014, with the consensus earnings estimate currently at $4.32. To meet or exceed that estimate, P&G will need some help from its vast overseas business, which accounts for roughly two-thirds of total sales.

While near-term operating results aren't likely to ignite much fervor with investors, the stock's yield of more than 3% should provide downside protection for the stock. P&G recently boosted the quarterly payout 7% to $0.602 per share.

I have owned Procter & Gamble stock for many years. While the stock rarely tops the leader board, it usually provides decent returns during up market years and has traditionally provided nice ballast to a portfolio during more stormy market periods. I suspect that will remain the company's modus operandi going forward.

I would feel comfortable nibbling on the stock at current levels and would buy more aggressively on price breaks below $70.

Editor's Note: This article was written by Chuck Carlson of DRIP Investor for MoneyShow .

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