In Portfolio Spotlight Series 2 – I will be going through each holding in my portfolio v2.0 and the selection criteria for its entry. Stocks are either
1. Great companies with consistent earnings, free cash flow, strong competitive moats. These are core holdings.
2. Potential growth companies with breakout earnings, growing competitive moats. These are holdings which typically are kept within 5% of the portfolio.
3. Geographical / sector diversifications. These are meant for diversification purpose and are kept within 5% if they are from emerging markets (e.g. China/HK) .
Next up in Portfolio Spotlight Series 2 is PG. It currently occupies 12% of my portfolio and I have strong conviction in this stock mid to long-term.
Procter & Gamble Co. engages in the provision of branded consumer packaged goods. It operates through the following segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers hair, skin, and personal care. The Grooming segment comprises of shave care like female and male blades and razors, pre and post shave products, and appliances. The Health Care segment includes oral care products like toothbrushes, toothpaste, and personal health care such as gastrointestinal, rapid diagnostics, respiratory, and vitamins, minerals, and supplements. The Fabric and Home Care segment consist of fabric enhancers, laundry additives and detergents, and air, dish, and surface care. The Baby, Feminine and Family Care segment sells baby wipes, diapers, and pants, adult incontinence, feminine care, paper towels, tissues, and toilet paper. The company was founded by William Procter and James Gamble in 1837 and is headquartered in Cincinnati, OH.
1)Consistent Revenue Growth
2)Consistent Free Cash Flow
PG has been having consistent free cash flow for the past 5 years
3)Market Cap Growth
As of September 2021 Procter & Gamble has a market cap of $349.79 Billion. This makes Procter & Gamble the world’s 21th most valuable company by market cap according to our data.
4)Consistent Net Income Multiple
PG has had consistent net income multiple. This indicates a management team which is efficient in handling its bottom line. A great management team is very important!
5) Future growth
This last factor is fundamental analysis. Does PG have future market growth driver(s) ? The answer is yes !
Most of PG future growth drivers will leverage on
Procter & Gamble’s Generic Strategy (Porter’s Model)
Procter & Gamble uses differentiation as its generic strategy for competitive advantage. Differentiation involves developing the uniqueness of the business and its products to attract target customers. In this case, Procter & Gamble highlights quality and value in its consumer goods. For example, the company offers high quality cleaning agents, like Tide laundry detergent, at affordable prices. Based on this generic competitive strategy, a suitable strategic objective is to maintain P&G’s high investments for R&D to ensure high-quality and valuable products. Another strategic objective based on Procter & Gamble’s generic strategy of differentiation is to maintain effective marketing strategies that emphasize the uniqueness of such products. Such product uniqueness determines pricing and promotional activities. These considerations are included in Procter & Gamble’s marketing mix or 4Ps.
The cost leadership generic strategy (also known as the low cost provider strategy) is partially applied on some of Procter & Gamble’s products, focusing on cost or pricing to achieve competitive advantage. For example, Pantene hair care products are priced relatively lower compared to competitors like Unilever’s Dove hair care products. Procter & Gamble’s marketing mix also considers this generic competitive strategy. A strategic objective based on the cost leadership generic strategy is to develop Procter & Gamble’s competitive advantage based on cost-minimization approaches. For example, automation is increasingly used to minimize cost and maximize efficiency in Procter & Gamble’s production processes.
Procter & Gamble’s Intensive Strategies (Intensive Growth Strategies)
Market Penetration (Primary Intensive Strategy). The Procter & Gamble Company’s primary intensive growth strategy is market penetration. In this intensive strategy, the main aim is to increase the company’s market share. Procter & Gamble does so through marketing campaigns to increase consumer awareness about the company’s consumer goods. This strategy is especially significant for low-performing products in the market. In addition, Procter & Gamble implements this intensive strategy through beneficial agreements with retailers. For example, P&G grows its market share by offering higher retail profit margins for some large retailers. In return such retailers display Procter & Gamble’s products in prominent locations or shelves in their stores. The differentiation generic strategy creates competitive advantage that helps increase success in applying the market penetration intensive strategy. A strategic objective based on this intensive growth strategy is to increase Procter & Gamble’s market share through aggressive marketing.
Product Development (Secondary Intensive Strategy). Product development is used as a secondary intensive growth strategy in Procter & Gamble’s business. This intensive strategy involves design and production processes for products that attract target customers. Procter & Gamble applies product development to support continuous business growth, while addressing competition. For example, P&G develops new products to increase its share of the global consumers goods market. In addition, Procter & Gamble increases its competitiveness by continually enhancing current products. The differentiation generic strategy directly determines the kinds of products that the company develops, especially in terms of competitive advantage based on quality and value. A strategic objective associated with this intensive strategy is to grow Procter & Gamble through continuous innovation.
Market Development. The Procter & Gamble Company uses market development as a supporting intensive growth strategy. Market development contributes to the company’s growth through entry into new markets or market segments. For example, Procter & Gamble could enter new market segments when it creates an entirely new product line or when it changes its market focus. In this way, Procter & Gamble can expect a new revenue stream. The generic strategy of differentiation makes it easier for P&G to enter new markets or market segments when implementing this intensive growth strategy. Also, a strategic objective based on market development is to increase Procter & Gamble’s R&D investment for new product lines, or to reform its marketing strategies to enter new segments in a growing or stable consumer goods market.
Diversification. Diversification is one of Procter & Gamble’s supporting intensive growth strategies. This intensive strategy involves establishing new business operations. For example, every acquisition and corresponding business diversification in Procter & Gamble’s history has led to considerable growth. However, this intensive growth strategy is considerably difficult to implement because of its large-scale effects on P&G’s business organization. For instance, each acquisition leads to adjustments in Procter & Gamble’s organizational structure. The differentiation generic strategy helps build competitive advantage the company needs to succeed in new business operations. Also, this intensive strategy leads to the strategic objective of using an aggressive approach to acquire other firms to grow Procter & Gamble’s business.