Procter & Gamble: A Defensive Holding for 2010?

Another argument in favor of the business behind Pringles and Pepto Bismol is the awesome fundamental picture supporting the model. This company generates cash flows and dividend payments that grow over time. It has a strong relationship at the retail level, and it can promote a product with the best of them. Institutional investors have always respected P&G's iconic status on Wall Street.

In fact, when it comes to shareholder value, management knows what it's doing. This great article in BusinessWeek discusses companies able to create genuine economic value. Generating economic value isn't simple. Remember that there are always alternative uses for capital. Allocation of investment resources, therefore, has to yield returns above and beyond the cost of capital. One must take into account investment vehicles that could generate cash with less risk; unless a corporate strategy is outperforming to an acceptable level, then quality value-generation might not be happening. P&G made the BusinessWeek list, and this is something to note.

I don't necessarily base investments or trades on economic value alone, but I wanted to highlight this element to the P&G story because it really does indicate management's effectiveness at stewarding the fundamentals. So ... what can go wrong? Why wouldn't you want to buy P&G for 2010? If you're the type who doesn't like to buy at the wrong time, and doesn't feel like adding to a position to improve costs basis, then you may want to think about P&G's chances of falling in the short term. The Dow has done well since March. Surely a correction is in the offing.

Nevertheless, my gut says P&G is probably a decent bet for the new year, and it likely will be defensive in nature. There are no guarantees, however. As always, perform your own due diligence.

Disclosure: I don't own any company mentioned; positions can change without notice.