When the market gives you indigestion, you look for relative strength as the prescription for the cure.
In this case we are going to look at Procter & Gamble, the maker Prilosec for a solution to our volatility induced stomach ache. Super Bowl partiers will be looking for Prilosec on Monday as well.
P&P has rallied nearly every day since the January 20th low and the market has tried its best to knock all stocks down equally. When in doubt, look for relative strength.
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PG - Procter & Gamble - Company Description
Procter & Gamble was started in 1837 and has grown to be an international company with hundreds of brands that are household names. This includes products like medicines, diapers, toothpaste, mouthwash, soap of all types, toilet paper, razors and hundreds more. There is not a person in America that does not have at least one P&G product in their home today and most probably have dozens.
They reported Q4 earnings in January of $1.12 that rose +37% on a currency neutral basis. Revenue was $16.9 billion. Revenue declined -9% due to an 8% impact from the strong dollar and a 3% impact from reorganizing in Venezuela as a result of their economic collapse.
P&G saw operating cash flow of $4.5 billion, up +117%. They repurchased $2 billion in stock and paid $1.9 billion in dividends in the quarter.
The guided for flat to low single digit growth in 2016 after an expected 7% drag due to currencies and a continued 3% drag from Venezuela. Absent Venezuela and currencies they could see high single digit revenue growth despite the weakness in the global economy.
In 2016, they expect to pay additional dividends of $7 billion and repurchase another $8 billion in shares.
Everybody knows P&G. This is a no brainer play. P&G has relative strength to the market and no material impact to its operations from the economy. P&G is recession proof because their brands are used every day by everyone.
This is a technical setup with PG shares about to break over resistance at $81. Earnings are a long way off on April 26th. If the market continues lower, we have the protection of relative strength. If it moves higher we should see PG shares retest resistance at $85 or even higher. The December 2014 high was $94.
With a PG trade at $81.50
Buy April $82.50 call, currently $1.78, initial stop loss $77.85
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