Gambling on Procter's Return
The recession knocked Procter & Gamble's stock out cold. Have the smelling salts finally arrived?</br></br>Shares of the world's largest consumer-products company have gained just 2% since the start of 2009, compared with a 22% rise for rival Colgate-Palmolive. The latter relies less on high-end products that consumers have forgone and has a stronger emerging-markets position. Since long before the economic crisis unfolded, Colgate's shares have traded at a premium price/earnings multiple.</br></br>Procter should have a healthier glow when both companies report quarterly earnings Thursday. Price reductions appear to have helped Procter win back market share in recent months, which should have underpinned strong sales. But those price cuts have been limited to about 10% of the company's portfolio and could damage Procter's margins and brands if extended much further.</br></br>The bigger question for Procter is whether consumers in the U.S. and Western Europe are ready to trade back up to its premium products. A survey of both high and low-income groups shows consumers have become willing to spend more on consumer products in the last two months, according to Bill Pecoriello of Consumer Edge Research. That could drive an impressive sales recovery, but only if developed economies stay on course and labor markets improve steadily.</br></br>Colgate's prospects look more dependable. Unlike Procter, which is saddled with low-growth products such as diapers and toilet paper, Colgate has a smaller portfolio generating faster sales increases.