The Dow Jones Industrial Average and S&P 500 have both risen over 300% from their panic-selling lows in March of 2009. Some investors might have reason to be concerned that the broader bull market is nearing nine years old. To top it off, the Dow rose 25% and the S&P 500 rose by almost 19.5% in 2017 alone. Those gains greatly outpaced expectations from forecasts at the start of 2017.
Wall Street strategists have weighed in on tax reform, broader earnings growth and higher GDP growth and expect the stock market to rise again in 2018. The view at the start of 2018 is that the market is heading higher this year. 24/7 Wall St. just came out with its annualized forecasting tool showing that DJIA at 26,400 and at least 2,855 on the S&P 500 are the baseline targets for 2018.
If the Dow and S&P are going to continue their meteoric rise, they are going to need help from many of the stocks that so far have just sat on the sidelines in this mega-bull market. Procter & Gamble Co. (NYSE: PG) has sat on the sidelines for long enough. In fact, in 2017 it was just a bench-warmer. The company may have actually wasted close to an entire year and countless of millions of dollars while it fought to prevent shareholder and activist investor Nelson Peltz from joining its board of directors.
P&G generated a total return for its shareholders of 9.3% in 2017, rather than the 11.1% expected a year earlier. Other Dow stocks greatly exceeded their expectations. One problem here is that P&G just isn’t a growth company. It is not in infrastructure, it’s not in tech and it seems to have no great reward from what was at first called the “Trump Bump” that generated keen interest in some many other sectors and companies.
P&G ended 2017 with a year-end price of $91.88, and the consensus target price was just $93.53. If you add up the 3.0% dividend yield, it’s still just an expected total return forecast of about 4.8% for 2018. So now analysts are calling for an even lower upside this year, and it disappointed against analyst forecasts in a great market year.
What could change at P&G? Some things look good, and some things look somewhat cautious.
First off, the Peltz issue has yet to be worked into the stock. What this outsider can actually do remains to be seen, but he did at least come to the table with plans and ideas. The company was no fan of Peltz or his efforts and plans.
Can tax reform taking a nominal tax bracket from 35% down to 21% help an outfit like P&G? The company already operates globally, with over half of its sales being outside of the United States. With 2017 sales of $65.05 billion, P&G had pretax income of $13.257 billion, and it had a $3.06 billion provision for income taxes. Without getting fancy and breaking out items, that was already a tax rate of about 23%. Thomson Reuters represents a consensus tax rate estimate of 23% to 24%.