Can Procter & Gamble Really Rally 19% This Year?

Up slightly on Thursday, Procter & Gamble (PG) - Get Report stock is trading well compared to the 1.5% beating that the S&P 500 is suffering. Procter & Gamble shares peaked in mid-December near $96 and are currently down about $5 per share (or about 5.2%) from those highs. Is that an opportunity for investors?

Compared to blue-chip tech companies like Apple (AAPL) - Get Report and Alphabet (GOOGL) - Get Report , which trade at 12 times and 25 times earnings, respectively, I wouldn't make the case that P&G is particularly cheap. After all, Alphabet and Apple -- even after the latter's recent guidance cut -- have better growth, larger cash flow and stronger balance sheets.

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Does that make P&G overvalued at 21 times this year's earnings? Comparatively, one may say yes. Historically, P&G is about average. Currently, shares trade with a trailing P/E ratio of 23.8, while its five-year average P/E sits at 23.3. However, one could argue that average is greatly elevated, thanks to a roughly one-year run, and that P&G generally trades between 16 and 24 times its trailing earnings.

That's not stopping analysts, though. 

Bank of America/Merrill Lynch analysts are modeling for a $108 price target on P&G stock, up almost 20% from current levels. Valuing the stock at 23 times 2019 earnings estimates, the analysts named Procter & Gamble one of their high conviction ideas. As the turnaround takes hold and margin pressures ease, P&G should see momentum in its business.

Trading Procter & Gamble Stock

It's not just its business that could see momentum, but also its stock price. While P&G is up just 1.3% over the past year, shares have done much better recently. The stock is up 17.5% over the past six months and almost 9% in the past three months. That compares to the six-month and three-month performance of the S&P 500, which fell 9% and 15%, respectively.

Within about 5% of its highs, does Procter & Gamble look attractive? Any stock that did this well in the fourth quarter is worth a look, but there are some concerns on the chart.

Seeing P&G up over this $88 to $90 level is encouraging, but it's obvious that momentum has been waning. The question traders are trying to figure out is whether this will lead to lower prices or if P&G is simply consolidating before the next move higher.

Unfortunately, the 21-day and 50-day moving averages are giving the stock trouble, while shares are also below a prior uptrend line from May 2018 (blue line). Should momentum continue to fade and PG stock head lower, look to see how $85 holds up as support. That will put the stock 11.5% off its highs and back to its October gap-up level. Below that and the 200-day is on the table.

Should Procter push above its moving averages, look to see how it does against the backside of prior uptrend support as well as the recent highs near $96 to $97.

This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.