Analysts on a consensus basis anticipate the company to grow earnings by 9.3% on average over the next five years. The company trades at a 14.8 earnings multiple, which is reasonable considering the historical consistency in the way the business is run. The company never fails to grow earnings even through the great recession. Let’s not forget the stock has extremely low volatility (0.3 beta). The company compensates investors with a 2.5% dividend yield, which is much more generous than the 10-year Treasury bond.
Consumer goods
The Procter & Gamble Company (NYSE:PG) is one of the most defensive stocks in the world. The company’s management team believes that it can sustain earnings-per-share growth through a mix of share buybacks, international expansion, new product ideas, and cost-cutting.
The company projects that between 2010 and 2020 the middle class will increase by 1.4 billion people, and 98% of that growth will come from developing markets. The company also projected that the world population will grow by 700 million people from 2010 to 2020. Demand for basic consumer goods like toothpaste, shaving cream, toilet paper, mouth-wash, laundry detergent will rise based on the macroeconomic trends. The company is heavily focused on growing its brands and product presence in emerging market economies, which will pay-off in future years.
The company believes that it can generate $10 billion in added earnings from cost-cutting efforts by 2016. The company plans to cut $6 billion in cost of goods sold, $3 billion in overhead, and $1 billion in marketing expenses. The company currently earns $10.8 billion, so if it is able to add an extra $10 billion in net income from cost cutting, P&G could double its earnings per share.
The company trades at a 20 earnings multiple. The high earnings multiple comes from the built-in expectation of high rates of growth (there’s the potential that earnings could double by 2016.) The company also compensates its investors with a 3.1% dividend yield.
Conclusion
The three companies are projected to grow earnings, pay a dividend, and trade at reasonable earnings multiples. Going forward, these stocks are likely to out-perform the broader stock market.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple and The Procter & Gamble Company (NYSE:PG). The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL).
The article What are the Best Stocks for the Next Five Years? originally appeared on Fool.com.
Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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