Each quarter, we take a look at the recent transactions of some of the top money managers around today--who we call our Ultimate Stock-Pickers. Last quarter, one stock was a high-conviction purchase for three of our favorite managers. What’s considered a high-conviction purchase? A high-conviction purchase is one that makes a meaningful addition to a portfolio, as measured by the size of the purchase in relation to the size of the portfolio.
The managers at Diamond Hill Large Cap DHLAX, Jensen Quality Growth JENSX, and Vanguard Dividend Growth Investor VDIGX all made meaningful purchases of Procter and Gamble PG last quarter.
At Morningstar, we think Procter and Gamble has carved out a wide economic moat, and we think the moat is stable. We applaud the firm’s decision several years ago to prune its brand mix and focus on high-returning opportunities, which has allowed it to nimbly respond to evolving consumer trends.
Morningstar sector director Erin Lash, who follows the company, concedes that the firm’s mix of essential, trusted items are being propped up by the pandemic--particularly its cleaning and health-related brands. But she thinks P&G should be resilient.
While there’s much to like about the company, we think the stock is overvalued today: It’s trading about 25% above our fair value estimate.