The Procter & Gamble Company (PG), Walgreen Company (WAG), Wal-Mart Stores, Inc. (WMT): Are Blue-Chip Consumer Staples Worth Today’s Premium Valuations?

The following estimated earnings and return calculator defaults to valuing The Procter & Gamble Company (NYSE:PG) based on the consensus of 27 analysts forecasting 5-year earnings growth at 9% (the dark orange line).  However, utilizing the PE overlay feature of FAST Graphs™, I have included the historical normal PE ratio of 19.5.  In other words, based on estimates that are consistent with Procter & Gamble’s historical growth, it would be fairly valued based on its historical normal PE, but overvalued based on my definition of True Worth™.

The Consumer Staples Sector

This is the sixth in a series of articles designed to find value in today’s stock market environment. However, it is the fifth of 10 articles covering the 10 major general sectors. In my first article I laid the foundation that represents the two primary underlying ideas supporting the need to publish such a treatise. First and foremost, that it is not a stock market; rather it is a market of stocks. Second, that regardless of the level of the general market, there will always be overvalued, undervalued and fairly valued individual stocks to be found.

My first article was titled Searching For Value Sector By Sector, my second article was titled Finding Great Value In The Energy Sector. My third article was titled Finding Value In The Materials Sector Is A Material Thing.  My fourth article was titled The Industrial Sector Offers A Lot Of Value, Dividend Growth And Income, and my fifth article was Beware Of The Valuations On The Best Consumer Discretionary Dividend Growth Stocks.

As a refresher, my focus in this and all subsequent articles will be on identifying fairly valued dividend growth stocks within each of the 10 general sectors that can be utilized to fund and support retirement portfolios. Therefore, when I am finished, the individual investor interested in designing their own retirement portfolio should find an ample number of selections to properly diversify a dividend growth portfolio with.

This article will look for undervalued and fairly valued individual companies within the general sector 30-Consumer Staples. Within this general sector, there are several subsectors which I list as follows:

Consumer Staples In Value:  Aggressive Candidates

As I screened the universe of Consumer Staple companies I did find seven candidates that fit my aggressive criteria.  This means that they are not blue-chip dividend stalwarts, but nevertheless appear to be interesting companies that are trading at reasonable valuations with the potential for solid long-term performance.  However, as you can see from the portfolio review below, some of these companies are very small, and therefore, additional due diligence and caution is suggested.

Orchids Paper Products Company (NYSEAMEX:TIS): My Featured Aggressive Consumer Staples Company

Orchids Paper Products Company (NYSEAMEX:TIS) is a leader in the private label tissue industry, and I’m not sure you can think of a product that most people would consider any more essential than theirs.  Consequently, this $210 million company with a 5.2% current yield and a history of above-average growth may be of interest to the more aggressive dividend growth investor.

Since going public in July 2005, Orchids Paper Products Company (NYSEAMEX:TIS) has generated significant profits and profit growth on behalf of their shareholders.  The company’s operating earnings growth rate has averaged 18.6% per annum, and even though they’ve only paid a dividend since 2012, they have been very generous to shareholders, as depicted by the light blue shaded area on the graph below.

Orchids Paper Products Company (NYSEAMEX:TIS)’s excellent operating history has generated excellent long-term returns for shareholders.  A $10,000 investment on July 29, 2005 when the company went public, would be worth $39,468.44 today.  That represents an 18.8% compounded annualized return that is almost precisely correlated to the company’s operating earnings growth of 18.6%.  Add in their substantial dividend payment over the last two years, and the company has outperformed the S&P 500 by orders of magnitude.  Consequently, this may be a small dividend growth stock worthy of further scrutiny for the aggressive dividend growth investor.