Defensive Investors Should Consider Procter & Gamble, Morgan Stanley Says

Credit: The Street
Published on May 17, 2019 - Duration: 03:08s

Defensive Investors Should Consider Procter & Gamble, Morgan Stanley Says

The U.S. market is still up considerably in 2019.

And as the economy clearly looks to be closer to the end of its current boom than the middle of it, some investors may want to consider defensive stocks, as the S&P 500 is up 14.6% year-to-date.

Enter Procter and Gamble "At Procter and Gamble we see sustained and high quality top-line improvement with strong breadth across the portfolio and a market share rebound despite greater pricing than peers," analyst Dara Mohsenain wrote in a Friday note.

"When combined with inflecting gross margins as pricing builds and commodities moderate, [this] should drive stock outperformance." Simply put, revenues look to be growing while costs abate, creating wider profits.

Management also noted on its latest earnings call that it saw 9% sales growth in emerging markets, compared with 3% growth in the U.S. "I expect both sets of markets to be sources of growth going forward, "chief financial officer Jon Moeller said.

Colgate-Palmolive is also expecting emerging market revenues to grow considerably (6.5% in its last quarter).

The risk?

Procter and Gamble is up 18% year-to-date, and is now trading at a forward earnings multiple of 22.7, not low for a consumer staples stock.

However, Colgate is trading slightly higher at 23 times forward earnings.

It's quite possible the emerging market expectations are part of those valuations.

Okay, you want sexier stocks?

Nvidia just reported earnings and provided solid guidance for its current quarter.

But data center revenue missed the mark as demand for data center chips remains weak.

And poor visibility into data center demand prevented management from providing full year guidance.

Shares fell 0.99% to $158.60 a share Friday.

Here's the key: Nvidia is competitively positioned in gaming and data center for long-term (rising competition still isn't out of the picture), but the stock is already up 17% this year, and trading at a relatively high forward earnings multiple of just above 30.

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