Procter & Gamble will gamble on new products
Recession-smacked Procter & Gamble (NYSE: PG) lowered prices on roughly 10 percent of its products last year. Now it’s trying to squeeze more sales out of its most popular brands – but that move could flop badly.
Consider its Olay skin-care brand, which raked in nearly $3 billion in fiscal 2009. The company is reportedly planning to roll out a wrinkle-fighting body wash next month in Olay’s Total Effects line, which currently consists exclusively of facial products.
Given Olay’s history as a facial treatment, why lose that focus? Well, it’s cheaper and faster to extend established brands into new categories than to build a fresh brand from scratch. But offering too many products under the same brand can confuse consumers and dilute the brand.
It’s also risky to introduce value-oriented versions of traditionally premium brands, as the company has done with Pampers and Tide. In order for that to succeed, shoppers must believe the premium product is still worth the extra cost while also viewing the value version as a step up from the store brand.
P&G plans to introduce 30 percent more new products this year versus last, so investors should keep an eye on the consumer reception.
Ask the Fool
Q. Is it OK to just read a company’s filings without reading the footnotes, too? – M.S., Tucson, Ariz.
A. If you skip the footnotes, you might miss some red flags (or green ones). At www.footnoted.org, Michelle Leder offers a fascinating education on footnotes. She recently reviewed the “worst footnotes” of 2009, citing Martha Stewart getting $3 million to stay at her company, Chesapeake Energy disclosing that it spent $12 million buying its CEO’s antique map collection, and Freddie Mac giving its new CFO a $2 million signing bonus (among other things), after taking in more than $50 billion in government aid. (Chesapeake Energy is a Motley Fool Inside Value recommendation and the Fool owns shares of it.)
Less exciting are the useful details you’ll also find in footnotes, such as the specific interest rates that a company is paying on its debt. You might not worry so much about a 3 percent obligation versus an 8 percent one.
Q. Why do I occasionally see tulips mentioned in my financial reading? – D.J., Dalton, Ga.
A. They’re references to the great “tulipmania” phenomenon that took Holland by storm in the mid-1600s. It’s one of the first documented cases of a speculative investing frenzy. Incredibly, people were taking out loans on their homes in order to buy tulip bulbs. Prices soared to the modern-day equivalent of tens of thousands of dollars per bulb. Eventually, the proverbial bubble burst, wiping out many investors. The easiest way to avoid “tulipmania” is to avoid borrowing money to invest and to be wary of stocks that have soared beyond reason.
My dumbest investment
I bought shares of Pacific Ethanol because I read that Bill Gates did. It turns out that Bill Gates is a lousy investor. It was my worst and best investment. It was the worst because my $5,000 turned into $5. (No, I never sold – I kept waiting for a comeback.) It was the best because I learned some lessons of a lifetime: Don’t buy on speculation of future earnings. Don’t buy nascent companies with zero history of making money in rough times. Don’t buy because someone else does. – C. Adams, West Chester, Pa.
The Fool responds: Whether it’s Uncle Morty or Bill Gates who has you looking at a particular stock, always do your own thinking. Remember that even great investors get some decisions wrong. It’s also smart to favor companies with respectable track records – or, heck, great track records. A terrific idea or product isn’t enough – you need growing profits, little or manageable debt, competitive advantages, smart management and more. Visit us at http://boards.Fool.com or http://CAPS.Fool.com and see what thousands of investors think about various stocks.