Dow component The Procter & Gamble Company (PG) reports fiscal first quarter 2021 earnings in Tuesday's pre-market, with analysts expecting a profit of $1.42 per share on revenue of $18.4 billion. The stock gapped up to a new high in July after beating fourth quarter 2020 estimates and raising guidance, and it has added another 10% since that time. It posted an all-time high at $145.87 in Friday's session and has now booked a 15% year-to-date return.
The consumer staples giant has offered shareholders the best of both worlds this year, posting healthy returns along with an annual dividend yield that now stands at 2.19%. The stock has benefited from pandemic tailwinds, increasing demand for cleaning products and other at-home goods, while its longstanding reputation as a safe haven in tough times has provided the income-seeking crowd an excellent trading vehicle.
Two-year returns look even more impressive, with the stock doubling in price since hitting a deep low in the second quarter of 2018. The rotation into dividend plays since that time makes perfect sense, with many investors believing that the decade-long bull market has grown "long-in-the-tooth." It is also impressive that P&G has held up well through 2020's roaring momentum market, in which the crowd traditionally sells "risk-off" plays to take exposure in "risk-on" plays.
Wall Street consensus on P&G stock is somewhat mixed, with analysts more focused on growth than value in 2020. Their opinions now yield a "Moderate Buy" rating based upon eight "Buy," four "Hold," and no "Sell" recommendations. Price targets currently range from a low of $125 to a Street-high $166, while the stock ended Friday's session right at the median $144 target. Look for upgrades and higher targets if first quarter results continue the bullish "beat-and-raise" theme.
Risk-on risk-off is an investment setting in which price behavior responds to and is driven by changes in investor risk tolerance. Risk-on risk-off refers to changes in investment activity in response to global economic patterns. During periods when risk is perceived as low, the risk-on risk-off theory states that investors tend to engage in higher-risk investments. When risk is perceived to be high, investors have the tendency to gravitate toward lower-risk investments.
Procter & Gamble Weekly Chart (2013 – 2020)
A 2012 breakout above the December 2007 high in the mid-$70s caught fire, lifting Procter & Gamble stock to $93.89 at the end of 2015. It lost one-third of its value into the third quarter of 2015 and turned sharply higher, completing a 100% round trip into the prior high in September 2017. Aggressive sellers then took control once again, generating a steep decline that ended at a two-year low in May 2018.
That low signaled the start of long-term market leadership, with a rapid advance that reached the 2017 high in December, followed by a breakout that posted continuous upside into October 2019. The rally paused into February 2020, giving way to a vertical decline into March, followed by a rapid recovery into July. The stock broke out after fourth quarter earnings, lifting into two rally waves that reached the mid-$140s last week.
The weekly stochastic oscillator is engaged in a mid-range weekly buy cycle, unlike the monthly reading, which has reached an extremely overbought level. However, the August-into-October consolidation pattern has carved much-needed support that should limit downside if sellers take control after the news. Meanwhile, the long-term outlook remains extremely bullish, with the $175 level marking a realistic upside target into the first quarter of 2021.
The Bottom Line
Procter & Gamble stock has lifted into Dow leadership in the past two years and should continue its winning ways well into 2021.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.