Procter & Gamble vs Colgate Palmolive Stock

Investors on the whole have two levels or risk appetite: low-risk and high-risk. The latter is chasing big returns and they are generally willing to accept some risk for their perceived reward.

In contrast, low-risk investors, also called the “risk-averse,” are forever chasing upside opportunities with as little risk as possible. Household goods stocks fall into this category.

Pros and Cons of Investing in Household Goods Stocks

Companies in the household goods industry make the items that you use every day. From dishwashing detergent and furniture polish to shampoo and toothpaste, the demand for these items tends to be high regardless of how the broader economy is doing – and consistent.

In fact, household goods stocks have such low volatility that they behave more like bonds than stocks. Point in fact, from the years 1996 to 2012, the value of this industry decreased by no more than 1%.

That is a major perk, however, low volatility also means lower returns.

For some investors, that makes households goods stocks a perfect addition to their portfolios, but they won’t be a good match for everyone.

Companies in this sector do experience certain risks that could erode their profitability, even if their business remains stable.

For one, they experience currency risks. In order to do business in varied places, household goods companies need to keep accounts in local currency and the value of those assets can fluctuate wildly depending on the country.

In addition, different countries have different regulations. From the materials that can be used to the way products need to be labeled, a substantive change could send shockwaves through these companies as they revamp their operations to meet new standards.

Household goods companies also experience risk relative to the market.

Many of the big-name stocks have behaved more like bonds in recent years, but the industry is changing. Thanks to technology and improved shipping abilities, there are lots of smaller competitors getting into the mix every day.

While a single small company may not take down a major conglomerate, several of them together could make a major dent in household goods revenues.

Further, these companies tend to compete on price. If something happens and they are unable to offer the low prices their customers have come to expect, many will try a competitor’s brand or choose a smaller company that can offer the same product for less or in a greater value.

Before you invest in any household goods stocks, make sure that you understand the company and the unique risks it faces.

Is Procter & Gamble Stock a Buy?

Procter & Gamble [NYSE: PG] falls into the household goods category.

The company has been around since the 19th century. It grew from humble beginnings into a massive consumer packaged goods company that serves customers in more than 180 countries.

Procter & Gamble’s business falls into five segments:

1. Beauty, grooming
2. Health
3. Home and baby
4. Feminine
5. Family

Most of its sales (44% in 2018) come from North America but Europe accounts for 24% of PG sales and the balance is roughly divided between Asia Pacific, Greater China, Latin America, and IMEA (India, Middle East, Africa).

The company’s biggest customer is Walmart [NYSE: WMT]; sales to the low-price department store chain comprised 15% of PG’s 2018 revenue. However, no other single customer accounts for over 10% of its sales, so it is fairly well-hedged.

Procter & Gamble [NYSE: PG] owns many well-known brands, but the exact offering fluctuates a bit. The company is actively working in acquisitions and joint ventures as well as divestitures, forever honing PG into the best (aka. most profitable) version of itself.

For example, PG recently terminated a joint venture with Teva Pharmaceutical [NYSE: TEVA] called PGT Healthcare and it is planning to acquire Merck’s Consumer Health Business.

These strategic moves come with risk and debt. PG has over $30 billion in debt on its balance sheet and less than $10 billion in cash.

Should You Invest in Colgate Palmolive Stock?

The Colgate-Palmolive Company [NYSE: CL] focuses its business on three segments: home care, oral care, and pet nutrition.

Some of its most popular products include its namesake Colgate oral care products and Palmolive dishwashing detergent as well as Irish Spring, Tom’s of Maine, Lady Speed Stick, Softsoap, Murphy’s Oil Soap, Fabuloso, and Hill’s Science Diet.

Like PG, Colgate serves customers in a large number of countries (over 200) and Walmart [NYSE: WMT] accounts for a disproportionately high percentage of its sales – around 11% – but no other company comprises accounts for than 10% of its earnings.

Also, like PG, Colgate-Palmolive [NYSE: CL] is in a tough cash position. The company has roughly $7.19 billion in debt with only $880 million in cash. In its annual report, the company discussed some of its initiatives to lower its costs and reduce expenses – which may help matters – but there is no guarantee that CL will be able to rein in the spending. Remember, a strained cash position is tough for companies in this industry because they need to be able to innovate and create new product offerings in order to keep and grow market share.

Procter & Gamble vs Colgate Palmolive Stock: The Bottom Line

Both Procter & Gamble [NYSE: PG] and Colgate Palmolive [NYSE: CL] have been emptying their coffers to pay for acquisitions. Some of these deals are, no doubt, good, but they have taken their toll on each company.

Firms in the household goods industry need innovation and new product development to remain competitive and a tight cash position compromises that.

Right now, both companies pay a dividend yield over 2% and both have one-year target estimates that are less than their current share prices.

While opening a long position in either company may well pay off, investors should be careful in the short-term, especially if the share prices on these companies do not experience a market correction.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.