Part 1

The recent steep market selloffs present a tremendous long-term buying opportunity for investors

One of our top stock-picks from the XLP for the month of April is:
Procter & Gamble (PG)

Procter & Gamble

Procter & Gamble or P&G, is a branded consumer products company which markets its products in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high frequency stores and pharmacies. It has operations in approximately 70 countries.
The company has five reportable segments: Beauty (18.7% of Q4 fiscal 2019 revenues) Grooming (9.3%); Health Care (11.9%); Fabric and Home Care (33.1%); Baby, Feminine and Family Care (26.3%).

This is another defensive stock from the Consumer Staples sector, which tends to significantly outperform the broader market in times of uncertainty just like our 1st pick – Johnson & Johnson. One of the reasons why we see tremendous value in these companies is associated with the fact that their stocks have been seriously hurt by the recent volatile and sharp market declines, which has brought down their otherwise higher valuations. Additionally, if we accept the thesis that an economic slowdown could be expected some time in the 2020-2021 period, then all big fund managers will be looking for safe places to put their clients’ funds and Procter & Gamble and Johnson & Johnson are household names in the Consumer Staples sector, that will definitely attract a lot of attention.

Shares of Procter & Gamble have gained 20.49% in the past year, thus substantially outpacing the broader industry, which in turn gained only 1.20% for the same time period. The company’s solid second-quarter fiscal 2020 earnings mark the continuation of its positive surprise trend and could result in possible upward revisions in the consensus EPS and Revenue estimates for the year. Furthermore, earnings and sales improved year over year in the most recent quarterly earnings report marking strong gains from productivity efforts, robust volume, favorable mix and pricing. P&G has been focusing on lowering its production costs for few years now, which has resulted in an uptick of the currency-neutral gross and operating margin by 120 bps and 220 bps, respectively. With the successful implementation of last year’s cost savings and efficiency improvements across all facets of the business, the company is well on track of completing its 5 year cost reduction plan. P&G has crossed the mid-point of its second five-year (fiscal 2017-2021) cost-saving target of $10 billion. The second five-year restructuring plan targets cutting costs in areas including supply chain and cost of goods sold (COGS), marketing and digitization and promotional spend effectiveness. Furthermore, it delivered adjusted free cash flow productivity of 100%. Backed by strong organic sales growth, core earnings and returns to shareholders in the fiscal second quarter, the company raised its view for fiscal 2020. P&G now projects core EPS growth of 8-11% for fiscal 2020 compared with 5-10% mentioned in prior quarters. In fiscal 2019, it reported core earnings of $4.52 per share.

After the stock rallied hard from $72 to $130 for the April, 2018 – February, 2020 period, thus appreciating with 80% for less than 2 years, it was time for a healthy corrective move to the downside, before pushing higher again. This allows investors to re-position themselves, close some old trades and initiate new ones. We will be interested to start buying the stock around the $96-101 strong support area and will look to collect our profits at $126 and $137 respectively.

One of our top stock-picks from the XLC for the month of April is:
Facebook Inc. (FB)

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