For two straight days, Cramer has been touting that value in a company like Procter & Gamble (PG). Normally, considered a fairly recession resistant stock, the stock held up comparatively well in 2008 dropping 16%. But the stock has actually fallen more than that thus far in 2009, down about 24%. The stock is especially attractive to Cramer considering the substantial monetary easing the Federal Reserve and the Treasury are participating in right now. There is little doubt that the increase in the monetary base will have an inflationary effect when the economy does begin to grow again.
“We like companies that have the potential to increase their dividends and are very likely to do so. And that’s companies like Procter & Gamble, which is right now, totally down on its luck. 20 bucks off of its high… The way to try to make money in this market and companies that can raise their dividends are showing you that they have what it takes to flourish. Not every day is going to be up 500 as we discovered today, so what does Procter & Gamble have going for it? Ordinarily I wouldn’t be backing a recession-resistant stock like Procter & Gamble when it looks like we can be approaching a recovery. One of the reasons for this rover is the Fed has rolled printing presses and the dollars are rolling out like you wouldn’t believe…It’s made the greenback weaker and it’s fabulous, Procter & Gamble.” Mad Money 3/24/2009
With a substantial amount of sales coming from overseas, 66% in 2008, Procter & Gamble is positioned to take advantage of the weaker dollar. Companies with a lot of sales overseas love to see the dollar decline because it makes their products more affordable in overseas markets. Even though there are signs of strength in the U.S. economy, the global recession likely still has longer to play itself out (not that the U.S. is necessarily out of the woods, either). Procter & Gamble makes products that people need to buy no matter the economy, and the combination of a global recession and weaker dollar is not a terrible thing for PG.
As for the Ockham methodology, we believe that P&G is Undervalued at current price levels. Procter & Gamble has commanded a much richer valuation a price-to-cash flow basis than they are receiving right now. Also, like Cramer stressed, the company has a fairly attractive dividend and has the potential to raise they are so inclined.