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.

Key Takeaways

  • The consumer staples giant has emerged as a leader in the Dow Jones Industrial Average.
  • The stock has posted two years of healthy returns along with a sizable dividend.
  • A $175 target looks reasonable into the first half of 2021.

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)

Chart showing the share price performance of The Procter & Gamble Company (PG)
TradingView.com

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.

An oscillator is a technical analysis tool that constructs high and low bands between two extreme values and then builds a trend indicator that fluctuates within these bounds. Traders use the trend indicator to discover short-term overbought or oversold conditions.

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.