Take P&G in a Long-Short Combo

 | May 28, 2013 | 12:13 PM EDT  | Comments
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You want a good long-short combination? How about Procter & Gamble (PG) vs. any packaged goods player, particularly Unilever (UN) or, even better, Colgate (CLP).

I was initially no fan of Bob McDonald when he came into the P&G CEO job after the legendary A.J. Lafley retired. I thought that even though he had a terrific reputation as a brand manager, he failed to take the tough action that he needed to do to assure the company's place in a more global world, where the lesser-developed portion gave you the growth that was needed.

In fact, at the beginning of last year I even put McDonald on the "Mad Money" Wall of Shame because of his failure to deliver growth and the open rebellion among the analysts on the quarterly conference calls. These were excruciating affairs.

But last summer he announced a series of restructurings and reorganizations that allowed the company to take out $10 billion in costs. A lot of what he had to do was to trim the fat that Lafley had let develop. In fact, it became clear to me in the mid-$60s that McDonald hadn't been delivered the treasured hand that the Street thought Lafley had given him. If anything, there were many leaders and divisions that had been allowed to fall behind under Lafley that were masked by a worldwide boom.

Now I wasn't dismissing McDonald's role in not taking the hard actions needed. I didn't dismiss them because he didn't do it himself. The man is remarkably self-effacing and his actions convinced me that I should take him off the Wall of Shame before everyone realized that he had revitalized the company and made the tough decisions that were needed to improve divisions like hair care, which had become a lagging player, and even detergent, which has began to lose share before McDonald introduced new Pod Tide.

These moves worked. I got behind McDonald at $65 and next thing you know the stock travels to $78 and becomes one of the best performers in the group. Now it is true that the last quarter was not up to snuff and didn't deliver what McDonald wanted. But the stock was roaring and McDonald, I thought, had earned the benefit of the doubt.

Now, I don't want people to short this one outright. It needs to be part of a pair. I also recognize that McDonald had put some initiatives in motion of which Lafley can now benefit. But the gain in the stock on the announcement of McDonald's departure would only have made sense if he had been relieved of his position before the tough restructuring kicked in. After? Made no sense at all.

So, I would take the euphoria and book the gain, especially because, despite McDonald's herculean efforts, the company was still not able to catch Colgate and Unilever, even as I think it would have in 18 months' time.

The group's extended anyway. I sense that the market wants to rotate out of the consumer packaged goods into Ford (F) and United Technologies (UTX) and the hard-hit banks and technologies anyway.

So why not exit or short it against those that are still better after the absurd relief rally that has taken place, even if you think the world of Lafley? Put simply, the stock's too high. There are better fish to fry.

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