P&G Gaps Up: What's Happening With This Staid Stock?
Talk to any money manager and he or she can tell you about the client who is terrified of risk.
For such investors,Procter & Gamble ( PG ) is close to ideal. The beta is 0.50, which means every time the market coughs, this stock merely clears its throat.
Of course, that also means when the market leaps, P&G sits and taps its toes. This is the way your Aunt Rose likes her stocks. She wants a stock to act like a bond, and she doesn't mean James Bond.
Consider P&G's steady virtues:
P&G has raised the dividend 56 years in a row. The yield is 3.1%.
Earnings rose in 18 of the past 19 years. The three- and five-year EPS Stability Factors are 2, on a scale that runs from 0 (calm) to 99 (wild).
Revenue growth seldom reaches double digits (five times in the past 19 years), but sales rarely retreat (twice in 19 years).
On Friday, however, P&G did something Aunt Rose wouldn't like.
It gapped up from a first-stage, base-on-base pattern in torrid volume. The buy point was 71.09.
A gap-up out of a base is exceptionally bullish. It's one of the few cases in which an investor can buy shares beyond the 5% buy zone.
If you're managing Aunt Rose's account, it's best if you don't draw attention to Friday's move. (And if you're reading this, Aunt Rose, turn the page now. It only gets worse.)
A gap-up for a conservative stock like P&G is unusual. So, what's happening with P&G?
P&G reported strong quarterly results -- topping views on EPS by about 10% and by 1% on sales. That alone can't account for the move.
About 11 months ago, P&G announced that it planned to eliminate 5,700 of its 129,000 jobs. The cuts were part of a restructuring to squeeze costs and up margins.
The payoff is kicking in. Quarterly after-tax margin grew from 11.9% in Q2 2012 to 15.1% and now to 16%.
The Street expects EPS to grow 3% in fiscal 2013 ending in June but triple to 9% in fiscal 2014.
At the earnings call Friday, CEO Bob McDonald said organic sales growth was more than 20% in Brazil and India. More P&G products are building scale in new markets.
How far P&G can take that growth strategy could spell the difference between what Aunt Rose wants and what the market wants.