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​MARKET WATCH P&G

JANUARY NEWSLETTER 2

GAME CONSOLE

​The Dow Jones Industrial Average and S&P 500 have both risen over 300% from their panic-selling lows in March of 2009. Some investors might have reason to be concerned that the broader bull market is nearing nine years old. To top it off, the Dow rose 25% and the S&P 500 rose by almost 19.5% in 2017 alone. Those gains greatly outpaced expectations from forecasts at the start of 2017.

Wall Street strategists have weighed in on tax reform, broader earnings growth and higher GDP growth and expect the stock market to rise again in 2018. The view at the start of 2018 is that the market is heading higher this year. 24/7 Wall St. just came out with its annualized forecasting tool showing that DJIA at 26,400 and at least 2,855 on the S&P 500 are the baseline targets for 2018.

If the Dow and S&P are going to continue their meteoric rise, they are going to need help from many of the stocks that so far have just sat on the sidelines in this mega-bull market. Procter & Gamble Co. (NYSE: PG) has sat on the sidelines for long enough. In fact, in 2017 it was just a bench-warmer. The company may have actually wasted close to an entire year and countless of millions of dollars while it fought to prevent shareholder and activist investor Nelson Peltz from joining its board of directors.

P&G generated a total return for its shareholders of 9.3% in 2017, rather than the 11.1% expected a year earlier. Other Dow stocks greatly exceeded their expectations. One problem here is that P&G just isn’t a growth company. It is not in infrastructure, it’s not in tech and it seems to have no great reward from what was at first called the “Trump Bump” that generated keen interest in some many other sectors and companies.

P&G ended 2017 with a year-end price of $91.88, and the consensus target price was just $93.53. If you add up the 3.0% dividend yield, it’s still just an expected total return forecast of about 4.8% for 2018. So now analysts are calling for an even lower upside this year, and it disappointed against analyst forecasts in a great market year.

What could change at P&G? Some things look good, and some things look somewhat cautious.

First off, the Peltz issue has yet to be worked into the stock. What this outsider can actually do remains to be seen, but he did at least come to the table with plans and ideas. The company was no fan of Peltz or his efforts and plans.

Can tax reform taking a nominal tax bracket from 35% down to 21% help an outfit like P&G? The company already operates globally, with over half of its sales being outside of the United States. With 2017 sales of $65.05 billion, P&G had pretax income of $13.257 billion, and it had a $3.06 billion provision for income taxes. Without getting fancy and breaking out items, that was already a tax rate of about 23%. Thomson Reuters represents a consensus tax rate estimate of 23% to 24%


​The Dow Jones Industrial Average and S&P 500 have both risen over 300% from their panic-selling lows in March of 2009. Some investors might have reason to be concerned that the broader bull market is nearing nine years old. To top it off, the Dow rose 25% and the S&P 500 rose by almost 19.5% in 2017 alone. Those gains greatly outpaced expectations from forecasts at the start of 2017.

Wall Street strategists have weighed in on tax reform, broader earnings growth and higher GDP growth and expect the stock market to rise again in 2018. The view at the start of 2018 is that the market is heading higher this year. 24/7 Wall St. just came out with its annualized forecasting tool showing that DJIA at 26,400 and at least 2,855 on the S&P 500 are the baseline targets for 2018.

If the Dow and S&P are going to continue their meteoric rise, they are going to need help from many of the stocks that so far have just sat on the sidelines in this mega-bull market. Procter & Gamble Co. (NYSE: PG) has sat on the sidelines for long enough. In fact, in 2017 it was just a bench-warmer. The company may have actually wasted close to an entire year and countless of millions of dollars while it fought to prevent shareholder and activist investor Nelson Peltz from joining its board of directors.

P&G generated a total return for its shareholders of 9.3% in 2017, rather than the 11.1% expected a year earlier. Other Dow stocks greatly exceeded their expectations. One problem here is that P&G just isn’t a growth company. It is not in infrastructure, it’s not in tech and it seems to have no great reward from what was at first called the “Trump Bump” that generated keen interest in some many other sectors and companies.

P&G ended 2017 with a year-end price of $91.88, and the consensus target price was just $93.53. If you add up the 3.0% dividend yield, it’s still just an expected total return forecast of about 4.8% for 2018. So now analysts are calling for an even lower upside this year, and it disappointed against analyst forecasts in a great market year.

What could change at P&G? Some things look good, and some things look somewhat cautious.

First off, the Peltz issue has yet to be worked into the stock. What this outsider can actually do remains to be seen, but he did at least come to the table with plans and ideas. The company was no fan of Peltz or his efforts and plans.

Can tax reform taking a nominal tax bracket from 35% down to 21% help an outfit like P&G? The company already operates globally, with over half of its sales being outside of the United States. With 2017 sales of $65.05 billion, P&G had pretax income of $13.257 billion, and it had a $3.06 billion provision for income taxes. Without getting fancy and breaking out items, that was already a tax rate of about 23%. Thomson Reuters represents a consensus tax rate estimate of 23% to 24%

​What makes the Nintendo Switch game console unique is its ability to be played on the go or at home in front of a player’s TV. That uniqueness has translated into booming sales.

The Switch has sold 4.8 million units in the United States in its first 10 months on the market, beating the previous all-time best seller — Nintendo’s Wii — which sold 4 million U.S. units in the first 10 months following its release.

The company attributed the Switch’s strong showing to a strong library of games, including Super Mario Odyssey which some 60% of U.S. Switch owners have purchased. Another big seller, with more than 55% of Switch owners laying down cash for, is “The Legend of Zelda: Breath of the Wild.”

The president and chief operating officer of Nintendo of America, Reggie Fils-Aime, said:

Fans across the country have experienced the joy of playing their favorite games at home or on the go. Now that many more people have received Nintendo Switch systems for the holidays, we look forward to bringing them fun new surprises in 2018 and beyond.

For the Switch’s unique capability as either a mobile gaming device or a home console, consumers paid $300, less than the $400 price of a Sony PlayStation 4 and much less than the $500 Xbox One from Microsoft.

The console was generally widely available, but Nintendo is credited with keeping the market well-enough supplied rather than just well-supplied. This seeming scarcity not only creates the ever-valuable buzz, but it can move tire-kickers to become buyers just in case they can’t find one later on.

Nintendo also sold nearly 3.3 million units in Japan in its first year on the market in the company’s home country. That beats a previous record set by the PlayStation 2 and the Wii. The company sold 900,000 units in December alone according to a report at Polygon.

Revenues generated by mobile apps and game sales rose 35% year over year in 2017 to $58.6 billion. Apple Inc. (NASDAQ: AAPL) nabbed $38.5 billion in sales at its App Store through in-app purchases, subscriptions, and premium apps, almost double the $20.1 billion total generated by Alphabet Inc. (NASDAQ: GOOGL) at Google Play.Google Play’s year-over-year percentage increase was 34.2% compared to the App Store’s increase of 34.7% according to research firm Sensor Tower.

The big difference is likely due to the unavailability of Google Play in China.By download volume, however, Google Play apps grew more rapidly. Sensor Tower noted:The growth of Google Play app downloads was more pronounced than those from Apple’s store at 16.7 percent versus 6.7 percent, respectively, a byproduct of Android’s higher rate of adoption in developing nations. Google Play downloads, which we count as the first install of an app per user account, totaled approximately 64 billion, or about 2.3 times the App Store’s estimated 28 billion.

Nearly 82% of total revenues — $48.3 billion — were generated by mobile games. Both Apple and Google saw game revenue rise by about 30% year over year. Spending on App Store games totaled an estimated $30 billion while Google Play spending totaled about $18 billion.Google Play accounted for about 77% — 27.2 billion — mobile game downloads last year, up 17.8% year over year. App Store game downloads totaled about 8.3%, up 5.5% year over year.

Mobile game downloads rose by 14.6% year over year, from about 31 billion to an estimated 35.5 billion.