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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

The Motley Fool: Procter & Gamble drop opens opportunities

The Motley Fool Take

Shares of Procter & Gamble (NYSE: PG) have shed close to 20 percent of their value so far this year, presenting a compelling opportunity for investors to buy into a world-class company.

Just how world-class? Well, consider that with a recent market value of $200 billion and annual revenue topping $75 billion, P&G is a consumer products force. It sports brand names that include Always, Bounty, Charmin, Crest, Dawn, Downy, Gain, Gillette, Olay, Oral-B, Pampers, Pantene, Tide, Vicks and Whisper — many of which generate more than $1 billion in revenue each year.

The stock is down because the company has been struggling with sagging sales as well as a strong dollar. In response, it has been selling off some of its underperforming businesses, such as Duracell. (It also sold 43 beauty brands, including Dolce & Gabbana, Gucci, Hugo Boss, CoverGirl and Max Factor.)

Procter & Gamble’s turnaround will take time, but the company is still a giant in its field, with more than $10 billion in annual free cash flow. While they wait, patient believers can collect a fat dividend that recently yielded 3.6 percent. The company has increased that payout for 59 consecutive years. P&G is also rewarding investors by buying back millions of shares while they’re inexpensive, boosting the value of remaining shares. (The Motley Fool recommends Procter & Gamble.)

Ask the Fool

Q: What’s a “fiduciary” standard? - P.T., Ashland, Kentucky

A: It’s a critical distinction to understand when it comes to people who give you financial advice. Traditional brokers, along with many insurance salespeople and some financial advisers, adhere to a “suitability” standard, meaning that any advice they give you should be suitable for you. If there is a range of suitable investments for you, and one will net them a hefty commission or bonus for selling you on it, they can recommend that one for you. Among all the suitable options for you, they can recommend the least suitable. Clearly, they can still look out for themselves first, ahead of you.

The fiduciary standard is much higher, requiring anyone held to it to put your interests first. It currently applies to registered investment advisers (RIAs), and there’s movement afoot to extend it to more or all financial advisers. Fiduciary advisers have a “duty to care” and to keep up with their clients’ investments and financial condition, and they must disclose material facts and conflicts of interest.

If someone is advising you, ask if they’re operating under the fiduciary standard, and get it in writing.

Q: What are investment “notes,” and how safe are they? — E.W., Tacoma, Washington

A: The term “note” usually refers to an intermediate-term bond, with a maturity between one and 10 years. Treasury notes, sold by the government, are the least risky. Corporate bonds are more risky. Higher-quality companies offer lower interest rates, while companies with lower credit ratings must offer higher rates in order to find buyers. “Junk bonds,” with the highest rates, are issued by risky companies.

Learn more at investor.gov/investing-basics, investinginbonds.com, morningstar.com/bonds.html and treasurydirect.gov.

My Dumbest Investment

My dumbest investment was Webvan. At least I sold my shares before the company disappeared. - P.M., online

The Fool responds: The Webvan story offers many lessons. For example, it’s not enough to have a great business idea and even to be first, or early, to market with it. Sometimes the timing is off and the world isn’t quite ready for the great idea. Sometimes the company might not have the financial resources to grow quickly enough and outpace competitors. Sometimes management may not be as skilled as necessary.

Webvan was founded in 1996 with the idea of letting people order groceries online that would then be delivered to their homes. It was backed by some of the most well-respected venture capitalists, but it still ended up a penny stock, having blown through more than $800 million before ending up filing for bankruptcy protection in 2001. Its customers liked its service, but there weren’t enough of them.

The idea of grocery delivery isn’t dead, though. Amazon.com is offering it in select markets, having hired some of Webvan’s executives, and it’s not without competition, either, such as from Whole Foods Market.

Webvan’s flameout was spectacular, but not isolated. It was part of the Internet bubble that burst in 2000, after investors had bid up the value of many stocks way beyond what they were reasonably worth at the time. Speculation is dangerous. Proven profitability is preferable.