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Better Buy: Procter & Gamble Co. (PG) vs. Pepsi (PEP)

They’ve each crafted massive consumer-facing businesses that, over the decades, have delivered awesome returns for long-term shareholders. However, both Procter & Gambleand Pepsiare struggling with market share losses today that have caused Wall Street to turn more pessimistic about their growth outlooks.

The good news is that this sour mood has pushed dividend yields to nearly 4% for these blue chip stocks. But which one might make the better investment today? Let’s take a closer look.

P&G vs. Pepsi

Company Market Cap Sales Growth Operating Profit Margin Dividend Yield
Procter & Gamble (NYSE:PG) $183 billion 2% 15.7% 3.9%
PepsiCo (NASDAQ:PEP) $137 billion 2% 16.5% 3.8%

Data sources: Company financial filings. Sales growth excludes acquisitions and divestments and is on a constant-currency basis for the past complete fiscal year.

Unattractive operating trends

Neither company has enjoyed impressive operating trends lately. For Procter & Gamble, sales are stuck at a 2% growth pace thanks to weakness in the broader consumer staples industry and stubborn market share losses to price-based competition.

Despite having transformed its portfolio to focus on its most promising franchises like Tide detergent and Pampers diapers, P&G continues to grapple with disappointing growth. “We have large businesses in several difficult markets,” CEO David Taylor told investors back in April as the company posted a sales expansion slowdown.

Close-up of a glass of cola with ice and a straw in it

Image source: Getty Images.

Pepsi executives aren’t satisfied with their competitive positioning, either. While much of its global snack and beverage business is performing well, the company has been losing share to rival Coca-Colain the core U.S. market for years now. In fact, the broader business would have grown at a robust 5% rate in the most recent quarter without the inclusion of U.S. beverage segment, which held that result down to just 2%.

Pepsi’s rebound plan involves ramping up marketing spending to match the increased investments from Coke.The company also believes it is making good progress at tilting its portfolio away from low-growth niches like sugary drinks and traditional colas. P&G, meanwhile, has many efforts underway aimed at improving operating results, including transforming its supply chain and reorganizing its marketing approach. Management’s core challenge is to tie all of these initiatives together and produce a sustained business uptick.

Solid cash returns

Thanks to their dominant market positions and aggressive cost-cutting strategies, both companies promise to deliver significant cash returns to shareholders. However, Pepsi comes out ahead on this metric. Its dividend recently increased 15%, compared to P&G’s 3% uptick, and management is expecting to ramp up stock repurchase spending over the next few quarters, while P&G is taking a step back from its aggressive buyback pace.

Woman in supermarket aisle choosing between two cleaners.

Image source: Getty Images.

Both stocks pay a far more generous dividend yield than the S&P 500,and neither payout is in any danger of being cut or suspended.

Which is the right choice for you?

Pepsi is valued at 17 times the $5.70 per share of earnings it is expected to generate this year. For P&G, that valuation sits at a pricier 19 times expected profits.

That discount is just one reason why I believe Pepsi is the better buy today. The more important factor is its relatively clear rebound strategy. Yes, it faces stubborn growth challenges that are made worse by weak industry trends. However, its snack and international segments are doing well, and so it is easier to see how Pepsi can begin marching back toward 5% sales gains next year. P&G, on the other hand, hasn’t yet found a strategic approach that shows it can return to its prior pace of modest market share gains in its key franchises.

Procter & Gamble (PG) PT Lowered to $83.00 at Stifel Nicolaus

Procter & Gamble (NYSE:PG) had its price objective decreased by Stifel Nicolaus from $85.00 to $83.00 in a research report released on Wednesday. Stifel Nicolaus currently has a hold rating on the stock.

Several other equities analysts also recently weighed in on PG. Berenberg Bank started coverage on shares of Procter & Gamble in a research note on Wednesday, February 28th. They issued a sell rating and a $78.50 target price for the company. Vetr upgraded shares of Procter & Gamble from a buy rating to a strong-buy rating and set a $96.92 target price for the company in a research note on Thursday, February 1st. SunTrust Banks reiterated a hold rating and issued a $90.00 target price on shares of Procter & Gamble in a research note on Tuesday, January 23rd. Zacks Investment Research downgraded shares of Procter & Gamble from a buy rating to a hold rating in a research note on Wednesday, April 4th. Finally, Bank of America reduced their target price on shares of Procter & Gamble from $100.00 to $90.00 and set a buy rating for the company in a research note on Thursday, April 12th. One equities research analyst has rated the stock with a sell rating, twelve have given a hold rating, six have assigned a buy rating and one has assigned a strong buy rating to the company. The stock presently has a consensus rating of Hold and a consensus price target of $84.13.

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NYSE PG opened at $73.80 on Wednesday. Procter & Gamble has a 52-week low of $73.74 and a 52-week high of $94.67. The company has a debt-to-equity ratio of 0.41, a current ratio of 0.94 and a quick ratio of 0.79. The stock has a market cap of $188,949.23, a P/E ratio of 18.83, a P/E/G ratio of 2.37 and a beta of 0.57.

Procter & Gamble (NYSE:PG) last posted its quarterly earnings data on Thursday, April 19th. The company reported $1.00 earnings per share (EPS) for the quarter, topping analysts’ consensus estimates of $0.98 by $0.02. Procter & Gamble had a net margin of 15.17% and a return on equity of 20.82%. The business had revenue of $16.28 billion during the quarter, compared to the consensus estimate of $16.22 billion. During the same quarter last year, the company posted $0.96 earnings per share. The firm’s quarterly revenue was up 4.3% compared to the same quarter last year. equities research analysts anticipate that Procter & Gamble will post 4.2 EPS for the current year.

The company also recently disclosed a quarterly dividend, which will be paid on Tuesday, May 15th. Stockholders of record on Friday, April 20th will be given a $0.7172 dividend. This is a positive change from Procter & Gamble’s previous quarterly dividend of $0.69. This represents a $2.87 dividend on an annualized basis and a dividend yield of 3.89%. The ex-dividend date is Thursday, April 19th. Procter & Gamble’s dividend payout ratio (DPR) is 73.21%.

In other news, Vice Chairman Jon R. Moeller sold 3,252 shares of the firm’s stock in a transaction that occurred on Thursday, March 1st. The shares were sold at an average price of $78.59, for a total value of $255,574.68. The transaction was disclosed in a document filed with the Securities & Exchange Commission, which can be accessed through the SEC website. Also, insider Marylynn Fergusonmchugh sold 2,353 shares of the firm’s stock in a transaction that occurred on Thursday, March 1st. The shares were sold at an average price of $78.59, for a total transaction of $184,922.27. The disclosure for this sale can be found here. Insiders sold 114,011 shares of company stock valued at $9,710,976 over the last 90 days. 0.35% of the stock is owned by company insiders.

Several hedge funds have recently added to or reduced their stakes in PG. Truepoint Inc. lifted its position in Procter & Gamble by 8,711.3% during the third quarter. Truepoint Inc. now owns 26,889,686 shares of the company’s stock valued at $26,890,000 after purchasing an additional 26,584,514 shares during the last quarter. American International Group Inc. lifted its position in Procter & Gamble by 448.0% during the fourth quarter. American International Group Inc. now owns 6,567,310 shares of the company’s stock valued at $603,404,000 after purchasing an additional 5,368,843 shares during the last quarter. Capital Research Global Investors lifted its position in Procter & Gamble by 74.2% during the second quarter. Capital Research Global Investors now owns 12,389,104 shares of the company’s stock valued at $1,079,710,000 after purchasing an additional 5,278,359 shares during the last quarter. Janus Henderson Group PLC lifted its position in Procter & Gamble by 1,244.6% during the second quarter. Janus Henderson Group PLC now owns 4,500,564 shares of the company’s stock valued at $392,226,000 after purchasing an additional 4,165,862 shares during the last quarter. Finally, Vanguard Group Inc. lifted its position in Procter & Gamble by 2.3% during the second quarter. Vanguard Group Inc. now owns 180,730,770 shares of the company’s stock valued at $15,750,688,000 after purchasing an additional 4,066,266 shares during the last quarter. Institutional investors own 60.95% of the company’s stock.

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About Procter & Gamble

The Procter & Gamble Company provides branded consumer packaged goods to consumers in the United States, Canada, Puerto Rico, Europe, the Asia Pacific, Greater China, Latin America, India, the Middle East, and Africa. The company's Beauty segment offers hair care products, including conditioners, shampoos, styling aids, and treatments; and skin and personal care products, such as antiperspirant and deodorant, personal cleansing, and skin care products.

Analyst Recommendations for Procter & Gamble (NYSE:PG)

8 Biggest Dow Losers So Far in 2018

Over the course of the past week’s five trading sessions, the Dow Jones industrial average dropped more than 1,400 points, the biggest weekly percentage loss in more than two years. Eight Dow component stocks are down at least 10% for the year to date and only six have been able to show a gain so far in 2018.

No one will be shocked to read that General Electric Co. (NYSE: GE) is the worst-performing Dow stock of 2018, down 25.1% as of Friday. The stock posted a new 52-week low Friday at $13.02. As the share price declines, investors worry more about the viability of GE’s dividend payments. At yesterday’s close the dividend yield is 3.41%. For the prior 12 months, GE shares have lost nearly 56% of their value.

Procter & Gamble Co. (NYSE: PG) has seen its share price drop by 17.38% to date in 2018. Shares lost nearly 4% last week and set a new 52-week low of $75.81 on Friday. The stock has long been a favorite defensive holding, and of the eight stocks on this list, its weekly loss was the second smallest. The stock’s dividend yield is 3.52%, and shares are down 16.4% for the past 12 months.

Walmart Inc. (NYSE: WMT) dropped 4.21% last week and shares are down 13.5% for the year to date. The company has been waging anear-life and death battle with Amazon that is both costly and only a moderate success. Walmart’s dividend yield at Friday’s close was 2.39%, and shares still trade up by over 22% over the past 12 months.

Exxon Mobil Corp. (NYSE: XOM) closed Friday down 12.85% for the year to date and down just under 3% for the week. That was the smallest weekly loss of any of the stocks on this list. Exxon was buoyed by last week’s5.6% boost to crude oil prices. The stock’s dividend yield was 4.14% at Friday’s close, and shares are down about 11% over the past 12 months.

Verizon Communications Inc. (NYSE: VZ) has lost about 12.5% of its value since the beginning of the year. Last week’s dip of 4.67% didn’t help, but Verizon did manage to avoid setting a new annual low during the week. The company’s 5% dividend yield helps keep investors in the fold, and some encouraging words about Verizon’s 5G technology also helped moderate losses last week. The stock is still underperforming for the past 12 months, however, down 6.75%.

DowDuPont Inc. (NYSE: DWDP) has posted a year-to-date drop of about 11.5% after losing 7.2% of its value last week. Like Verizon, the industrial firm managed to avoid posting a new low last week, and the stock price is flat over the past 12 months. DowDuPont’s dividend yield was 2.32% at Friday’s close.

Johnson & Johnson (NYSE: JNJ) dropped 6.42% last week to bring its year-to-date loss to 10.5%. Like P&G, this is another defensive stock that investors hold onto for its long history of dividend performance. At Friday’s closing price, the dividend yield for J&J is 2.64%, hardly a dazzler, but an amount that is a virtual lock to be paid. For the past 12 months, its shares have lost just 0.6%.

McDonald’s Corp. (NYSE: MCD) makes this list because its stock is down 9.96% for the year, close enough to 10% for us. Shares lost 4.55% last week, but has still has added just over 20% to its share price during the past 12 months. Not quite as sure a defensive play as P&G or J&J, McDonald’s pays a dividend yield of 2.55% and remains a favorite among some analysts.

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These Are the Only Dow Stocks Up for the Year

Is Facebook Inc Stock a Screaming Buy or a Portfolio Destroyer?

If I said in January that Facebook Inc (NASDAQ:FB) stock would be trading near $150, many investors would be backing up the truck. After all, it’s the premiere platform for advertising — who wouldn’t want to buy Facebook stock?

It’s easy to ask for a pullback in certain stocks or the market as a whole. But when you see the S&P 500 down 10% in 10 days like we witnessed in February or are staring at FB stock down 20% from its highs, pulling the “buy trigger” becomes a whole lot harder.

In that regard, is it time to buy FB stock?

I’m going out on a limb to say yes, it’s time to start a position. Whether you’ve been long since its $38 IPO and were looking for a pullback to buy or have been contemplating a fresh position in the social media juggernaut, 20% declines in Facebook stock don’t come around too often.

The fear with these types of situations is: How low will the pullback in Facebook stock last?

Sizing Up Facebook Stock

Facebook’s user data issue is a bad one. It’s drawing boycotts and advertiser pushback, while causing users to question the morals of the company. It’s got CEO Mark Zuckerberg heading to Capitol Hill to testify and it raises concern about potential regulations in this space.

It also raises questions about Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP). Some have reported that both Twitter and Snap have engaged in similar data-selling practices that Facebook has. Are they next to get significantly hit?

Perhaps, but so far the social media leader has been hit the hardest. At best, FB stock would have been looking at 5% decline. At worst, it will get pummeled like Chipotle Mexican Grill, Inc. (NYSE:CMG). But that would require a decline of more than 66% or in Facebook’s case, a fall to $68. I can’t imagine a scenario where that plays out.

But what about a 30% fall to $136.50? Is a 40% decline to $117 in the cards?

Only because FB stock has fallen 20%, does a decline of 30% seem possible.

In the short-term, it’s hard to imagine much more pain. What we need to see is the business impact. Facebook still connects 2 billion people per month. It still has impressive daily and monthly active user growth. And ultimately, it still has impressive ad, revenue and earnings growth. If these metrics take a hit, that’s how Facebook stock could see major declines this year.

Trading FB Stock

There’s no way to put it nicely: the charts are not good. Now below the 50-day, 100-day and 200-day moving averages, the stock’s vital uptrend has been shattered. Seeing it below $155, what seems to be a notable support level, is also discouraging. While shares bounced Thursday, it’s no guarantee it will last beyond end-of-quarter trading.

Further, we’ve got the 50-day now below the 100-day, showing that intermediate trends are no longer bullish. If the 50-day moving average crosses below the 200-day, it will form what’s known as a “death cross,” a bearish technical setup. It shows that the longer term trend is no longer bullish.

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Click to Enlarge

So why the heck would we want to buy this thing? Buying FB stock is ultimately a bet that it’s business will not suffer catastrophic consequences. It will suffer to some degree, but this doesn’t change the fact that the Facebook platforms are the best way for advertisers to reach customers.

I wouldn’t go all-in on Facebook stock yet. But nibbling a starter position now for a longer-term investment is a bet that FB is still relevant in 6 months, 12 months and 24 months.

Valuing Facebook

Estimates still call for earnings to grow 36% this year and 21% in 2019. Revenue estimates call for 35.8% and 27% growth this year and next. Shares trade at just 17.2 times 2019 earnings estimates. Even if we haircut this year’s earnings estimates of $7.35 per share by 20% (down to $5.88) and cut 2019 estimates by 10% down to $8.01 per share, FB stock still only trades at 19 times 2019 estimates.

On an earnings basis, it’s still cheaper than SNAP, TWTR and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG). Heck, it’s even cheaper than The Coca-Cola Co (NYSE:KO) and has a valuation in line with Procter & Gamble Co (NYSE:PG).

For a company with this fat of margins — ~50% operating margins, ~40% profit margins — and this strong of growth, sub-20 times forward estimates is a good price for longer term investors.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did held a long position in GOOGL. 

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Amazon Widening Moat With Prime, Alexa And Echo Integration

source: Cnet

For the first time ever, Amazon recently released its full-year shipping numbers for Amazon Prime, saying for 2017 it delivered more than 5 billion products around the world, and increased its prime subscriber base at a pace it never has reached in the past.

It also said in the Christmas season of 2016 it delivered 1 billion products – although it didn’t release full 2016 shipping figures.

It also said the biggest seller among its Prime members in the U.S. was Echo Dot and Fire TV Stick. The Fire TV Stick can communicate with Alexa if the remote has a Voice button, further locking in consumers to Amazon’s ecosystem. Most if not all the things you can do using an Echo can be done with a Fire TV is you want.

Besides the lock-in, Amazon (AMZN) has revealed where it’s taking all of this: Developing an ad model around the devices it makes that use Alexa. The significance of Prime members buying the two devices in large numbers points to Amazon having a sizable consumer base to work from.

Combined with other Prime perks, it’s going to be difficult for competitors to dislodge customers from the integrated services and products.

Ad potential

Even though Amazon is easily the market leader in e-commerce, that’s not the case with its advertising business, which is fifth among U.S.. companies. The bulk of Amazon’s ad revenue comes from sponsored placements on its website.

In the third quarter of 2017 ad sales came in at over $1 billion. According to eMarketer, that will grow by 42 percent in 2018, to $2.4 billion. That pales in comparison to Facebook’s (NASDAQ:FB) $21.6 billion and Google’s (NASDAQ:GOOG) (NASDAQ:GOOGL) $40.1 billion. From that reference point, Amazon has nowhere to go but up with its ad growth.

As for voice search and related ad potential, Google said as far back as May 2016 that 20 percent of searches on mobile were from voice. Looking ahead, comScore has said it believes voice-initiated searches will account for about half of all searches by 2020.

This is a powerful ad revenue catalyst for Amazon, which holds close to 75 percent market share at this time, and may have increased that in the Christmas shopping season.

A report from CNBC noted that sources tell them it is in negotiations with a number of large brands, including Clorox (NYSE:CLX) and P&G (NYSE:PG), either to promote products within Alexa skills, or to sponsor products when Alexa provides suggestions. That would be similar to shopping within the existing Amazon interface, with the exception of it being a combination of audio, and now it appears video, with the move toward offering Echo with a screen.

It’ll be interesting to see if it innovates with Fire TV and moves in a similar direction.

The future of Alexa and Echo will probably be immersive

Based upon the response of Amazon to audio ads launched by VoiceLabs in May 2017 for devices using Alexa, it appears the company wasn’t impressed with the results, as it was shut down by Amazon.

Interestingly, CEO Adam Marchick said consumers were highly receptive to the audio ads. He also said there was a lot of advertiser demand from CPG companies, to prompt people to add products to their shopping carts.

It’s possible the results were OK, but Amazon may have been looking for a lot more. I think Amazon sees video being a part of the future of Alexa and Echo, and is probably positioning itself to offer a more immersive ad experience for consumer, by which I mean one that includes all the senses.

The strong sales of Echo Dot doesn’t lend itself to that, since it doesn’t include a screen at this time. But the strategy to me seems to be to get the devices in the home and grow and retain hefty market share, and then promote the idea of a premium device and experience, led now by Amazon Echo Show, which does have a screen.

I think we’ll probably see Amazon eventually roll out a lower cost Echo with a screen in the not-too-distant future, if it is in fact looking to ramp up its video business by including visuals with the audio of Alexa.


Not to be lost in all of this is the ongoing growth of Amazon Prime. While we all know a percentage of the people getting temporary free Prime subscriptions during the Christmas season are going to drop out, but a significant number will stay on as well.

Amazon is obviously building an ecosystem with its Prime, Alexa, Echo, and probably Fire TV, which will make it extremely difficult to compete against.

As it builds that out, not only is it generating more revenue from its Prime members, which most investors know about, but it seems like those using Alexa are highly engaged when ordering from the e-commerce giant.

This is prepping Prime subscribers for the convenience of using Alexa and Echo to accept ads in the future on the device. Ads that won’t be considered intrusive, but part of the experience of being offered suggestions that are based upon the comprehensive database Amazon has on its customer’s buying habits and interests.

Once again, I think Amazon has outmaneuvered its competitors and is about to become a strong player in the digital ad space. This should add yet another solid revenue stream to its growing business.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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