Value stock: Procter & Gamble
A national conglomerate, an American dream, a friend of families, their hygiene and a super successful investment, that’s what Procter & Gamble is, if you ask us.
Having one of the largest market shares in America for some companies, apparently, isn’t enough. They just need to go worldwide and monopolize, capitalize and do every other thing having “ize” in them.
The corporation is worth 355 billion dollars as of October, 2020 and is still rapidly growing, despite being a public company since the early sixties. 60 years, that’s an age to be proud of. But that’s only the age of the IPO, in reality, the company has been around for 183 years.
That makes it one of the oldest large, public companies in the US.
This health revolution started in 1837 when two relatives, William Procter and James Gamble had founded Procter & Gamble.
The demand for health at that time was beyond high levels.
Not to forget, the American Civil War was taking place in the middle of the 1800s so the need for good supplies for soldiers was also massive. This phenomenon had been one of the secrets of P&G’s immediate success.
In the late 1850s the company had become a million dollar giant who now could compete with other whales.
Procter & Gamble was successfully using government contracts during the Civil War and selling mostly candles and soap to different divisions of the union soldiers. Having such great growth, the company could not keep up and had to do some reforms.
One of them was starting to introduce vegetable oils. As more and more inventions from the company itself and its competitors followed, radio was first introduced and had soon started gaining popularity, especially in cars.
Radio became the go-to marketing platform for Procter & Gamble and as it was so revolutionary, the company had a great advantage against its competition. That way of marketing had been working really well for the company so the sales surged.
Now was the time to expand.
To the country where the founders emigrated from, the United Kingdom.
In 1930 P&G had acquired a company called Thomas Hedley & Co which soon became the headquarters of the company and stayed that way until the early 2000s. Some notable consumer brands have to be acknowledged.
All of us know Tide, an orange, super effective laundry detergent which many people could hardly live without, it’s just the number one product of choice for many. Another very important product which would change people’s lives was a classic shampoo called Prell.
Fluoride in modern toothpaste was also first introduced by none other than P&G and the name of the product was Crest. To get involved even deeper in the “bathroom market“, the company had purchased Charmin and got its hands on toilet paper production as well.
A notable thing to remember is that P&G was the owner of Clorox for less than a decade, about 60 years ago, but the FTC had soon realized that this might lead to a massive capitalization, declining the purchase not long after.
To put into perspective how large and influential P&G is today, we shall look at even more acquisitions the company had made throughout the years.
One of the most important products of Procter & Gamble is Pampers, which had completely restructured the baby-care industry and is still probably the most popular product on the market.
After that, companies like Old Spice were being purchased, letting P&G take a significant market share in men’s hygiene products. Another acquisition was the one of Pantene, series of women’s hair products.
P&G also couldn’t leave the men’s hair market alone, so it introduced Head & Shoulders which practically cannot be competed against till this day if we are talking about dandruff and oily hair.
In the early 2000s, an acquisition of Gillette followed, putting P&G on the pedestal as the largest company in consumer product manufacturing in the United States. Gillette, before that, also owned such brands as Oral-B or Duracell.
However, after a decade or so, the company started seeing that the majority of the smaller brands acquired were not performing too well.
In the early 2010s, P&G started selling off these underperforming brands like Pringles and Folgers and nearly a hundred of other brands because the majority of the original brands of the company were making all the money, there was just no place for the remaining ones.
Some of the biggest sells for P&G was Duracell and the purchaser just happened to be none other than Warren Buffett’s Berkshire Hathaway. Another sell was massive, the deal had reached 13 billion dollars when selling more than 40 brands to Coty.
Now in regards to the P&G stock. This massive growth had actually started in the early 80s when Wall Street started getting computerized and the access to high-frequency trading was given to financial institutions.
The stock was going pretty much only upwards until 1999 and then some problems arose. Expenses grew, employees had to be replaced, sales and earnings per share had fallen. And on top of that, the dotcom crash followed which had affected every single stock on the market.
Only about 3 or 4 years later P&G stock recovered to the same level it was on before the crash. Few years had passed successfully, with growth and then what came was the 2008 global economic crisis. This also took about 4 years for the stock to recover.
Then, the shareholders saw some humps, suffered a bit in 2018 but after that, the stock had surged and is still surging to its record highs. As coronavirus pandemic hit and people started panicking about having every essential self-care and cleaning product, the sales had grown immensely.
It is absolutely amazing that a company, nearly 200 years of age is able to have its stock go through the roof by 40% during a pandemic. The time couldn’t have been better for the consumer goods giant, Procter & Gamble.
The company also has a chance to capitalize on mask sales during this virus period and win over other companies just with its authority in this kind of market. People are aware of their hygiene today more than ever and it will stay that way forever, as far as we see.
We should expect even greater things happening to this company in the future,
P&G, being a consumer goods corporation, just like Pfizer or Johnson & Johnson had some serious questionable practice which resulted in public outrages, lawsuits and many more things that we would not be able to cover here.
Of course, we can see P&G making lots of false claims, but how bad can it get? Well, a gastro-reflux drug called Prilosec was claimed to treat heartburn very fast, which it didn’t so, soon, loads of lawsuits started flooding in from all over the place.
Also, for some amount of time, the company has been known to treat employees quite poorly.
However, we shouldn’t treat Procter & Gamble too badly, all companies have their flaws and it seems like there is not that much bureaucracy in such large company. P&G is one of the largest advertisers in the United States, spending roughly 4 billion dollars on ads each year.
In terms of ads, in some ad placements, the company is overthrowing even giants like The Coca-Cola Company. It is not surprising when a corporation has brands like Gillette, Pantene, Tide or Pampers under its wing.
It’s a company that makes investors happy, in addition to this great stock growth, the it also pays a dividend with a yield of 2.21%. The 3-month average daily trading volume of P&G is pretty low – it barely reaches 6 million shares traded each day.
That might not make this stock liquid but in Procter & Gamble’s case, it does not really matter as the majority of market participants are swing traders or long-term holders. Since the early sixties when the company IPO’d, the stock has grown more than +9800% as of now, October, 2020.
P&G is also an important company in the Dow Jones Industrial Average market index, which covers the 30 largest companies in the US and representing the main movement of the stock market.
Practically, the company is a leader in every single industry that it’s in, from dish soaps, odor eliminators, dental care, shaving, laundry deterrents and beauty, both for men and women.
It is extremely difficult for somebody to compete against P&G as it has been ruling the department stores and supermarkets all over the world for nearly 2 centuries.
It is difficult to imagine that this global conglomerate, a leader in consumer goods started just with soap and candles but when you think about it, this makes sense. Johnson & Johnson used to sell just healthcare manuals and first-aid kits, Google started just with an algorithm while Yahoo! was the main player in town.
It’s absolutely amazing to think how these companies had grown through generations. We really hope that the next 200 years are as strong as the first ones, P&G just needs to keep recruiting such bright people as it does today.
The demand for health, hygiene and beauty products is, as mentioned, the highest there ever was, people want and need to protect themselves from a variety of microbes, viruses and much more.
During the period of the COVID-19 pandemic, Procter & Gamble is developing new sanitizers to be substantially more effective and more “sanitizery”. Doing great things for the society always pays off, especially when those great things don’t let the public down.
This is a reminder for P&G to stay powerful and innovate even more as humanity clashes with brutal products of nature.