Best Buy for Bear Market: Coca-Cola vs. Procter & Gamble
During a bull market, investors usually switch from strong companies with slow growth towards stocks with higher growth. But when a bear market starts, the trend reverses as investors scramble towards safer ever-green games.
coca cola (Do you 0.18%) And the Procter & Gamble Company (PG 0.43%) They are two of those defensive bear market stocks. Sales of Coca-Cola beverages generally remain stable during economic downturns, as do sales of P&G’s established brands, which include Tide, Pampers, Tampax, Charmin, Bounty, Gillette, Oral-B, Head & Shoulders, Pantene, and SK-II .
Both stocks are also Dividend Kings, which means they’ve raised their payouts annually for at least half a century. Coca-Cola has maintained that streak for 60 years, while P&G has done the same for 66 years. Obviously, both of these stocks are safe and long-term investments. But what is the most convincing buy right now as the three-month-old bear market continues? lets see.
Coca-Cola’s strong recovery after closing
Soda consumption rates have declined in developed markets since the early 2000s as consumers shift to healthier drinks. However, Coca-Cola countered this slowdown by expanding its beverage lineup with more brands of tea, juice, sports drinks, energy drinks, bottled water, coffee, and even alcoholic beverages. It also updated its flagship soda with sugar-free versions, smaller serving sizes, and brand-new flavours.
The Coca-Cola business was not resistant to the epidemic. After growing 6% in 2019, its organic sales are down 9% in 2020 as restaurants close to slow the spread of COVID-19. This loss in food service revenue offset stable retail sales.
But in 2021, its organic sales are up 8% as the shutdowns are over. Coca-Cola now expects organic sales to grow another 12% to 13% this year, even as it halts sales in Russia, weather the unexpected “zero COVID” shutdowns in China, and inflation and currency headwinds. It expects full-year comparative earnings per share to grow 5% to 6%, and to increase 14% to 15% on a constant currency basis.
Post-lockdown slowdown for P&G
Over the past decade, P&G has gotten rid of dozens of brands — including 41 beauty brands it sold on kotie In late 2016 – to simplify its business. These efforts have drastically cut costs while shrinking its sprawling portfolio from around 180 brands in 2014 to just 65 brands today.
P&G’s organic sales were up 5% in fiscal 2019, which ended in June of the calendar year. However, its organic sales grew 6% in both 2020 and 2021 as shoppers stocked more household products throughout the pandemic. Organic sales grew another 7% in fiscal 2022, but the company expects only 3% to 5% growth in fiscal 2023 as it raises its prices to offset sluggish shipments in the post-pandemic market. Sales in China have also been disrupted by intermittent shutdowns.
With P&G’s sales growth slowing, it expects its core EPS to grow just 0% to 4% in fiscal 2022 as it deals with inflation, rising shipping costs and a strong dollar. On a constant currency basis, you would expect the underlying EPS to increase by 6% to 10%.
What is the best value stock now?
Coca-Cola trades at 24x forward earnings and pays a 2.8% forward dividend yield. P&G is also trading at 24x forward earnings, but it pays a slightly lower yield for its forward dividend of 2.6%.
Coca-Cola and P&G both look a little too expensive for their earnings growth because they are an obvious safe haven in this volatile market. Both stocks may hold up well as long as investors are scared, but their extended valuations may also limit their upside potential. Once investors get greedy again, their currently inflated valuations can deflate.
That’s why I wouldn’t be in a rush to buy any of these defensive stocks right now. However, Coca-Cola’s stronger growth, higher profits, and simpler business model make it a much better buy than P&G in this massive market.
Leo Sun does not have any position in any of the mentioned stocks. Motley Fool recommends the following options: Long January 2024 calls worth $47.50 on Coca-Cola. Motley Fool has a disclosure policy.