Wal-Mart Stores, Inc. (WMT), The Procter & Gamble Company (PG): Should We Follow Richard Pzena Into These 2 Stocks?

Interestingly, Unilever N.V. (ADR) (NYSE:UN) has kept on expanding its footprint in the developing markets. At the end of 2013, it announced a $5.4 billion investment to raise its stake in Hindustan Unilever, from 52.5% to 75%. Paul Polman commented that it was the company’s further step to expand its business in emerging markets. He said: “ The long heritage and great brands of Hindustan Unilever, and the significant growth potential of a country with 1.3 billion people makes India a strategic long term priority for the business.”

In the past several years, Paul Polman has restructured Unilever’s business quite successfully. It has divested food businesses to shift its focus to the Beauty & Personal Care business in the emerging markets. Moreover, a more decentralized structure allows the company to respond quickly to local demands.

Bill Ackman saw the potential value of The Procter & Gamble Company (NYSE:PG) in its cost saving program. The cost reduction plan of as much as $10 billion would last four years, ending in June 2016. It includes $6 billion in COGS reduction, $1 billion in overhead savings, $1 billion in marketing efficiencies, and $2 billion in operating leverage.

Interestingly, the $6 billion plan of COGS reduction would translate into less than 3% annual COGS efficiency, much less than Unilever’s 4.1% and the industry average of 4%. If The Procter & Gamble Company (NYSE:PG) could achieve 3.5% annual COGS Productivity, its gross margin could increase from 50.9% to 51.5%. Moreover, with the company’s massive scale advantage, its Core SG&A ratio could be reduced from 14.4% to only 11%. Consequently, the EBIT margin could rise from 18.8% to 24%. With organic revenue growth of 6% and EBIT Margin of 24%, its 2016 EPS would reach $6.

With 2016 EPS of $6, a P/E multiple of 20 could lead to a share price of $120. Including the dividends of $5 per share, its total value per share in 2015 would be $125, a 60% premium to its current trading price.

My Foolish take

Personally, I like all three large cap stocks mentioned above due to their massive global economies of scale. Wal-Mart is not expensive at the current moment and gives a decent dividend yield to shareholders. The Procter & Gamble Company (NYSE:PG), after implementing a cost saving plan, could deliver a sweet return for shareholders. Unilever, at $41.80 per share, is valued at only 19 times its forward earnings, a bit lower than the average of 21.1. Moreover, investors could get a nice dividend yield at 3.4%.

The article Should We Follow Richard Pzena Into These 2 Stocks? originally appeared on Fool.com and is written by Anh HOANG.

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