One year ago this week, I invested my annual bonus in The Procter & Gamble Company (NYSE symbol PG). How has my investment performed? Rather well, thank you.

On March 19, 2007, I paid $61.72 a share. Friday, PG closed at $66.74. During the year, PG provided a dividend of $1.40 per share, resulting in a 10.4% return on investment.

Over the same timeframe, the Dow Jones Industrial Average was down 1.3%, the NASDAQ was down 6.8%, and the S&P 500 was down 7.1%.

I am pleased with the results of Procter & Gamble, given the tough market conditions we experienced the past year.

Why do I own Procter & Gamble?

PG is recognized as one of the most innovative companies in the world. The company's economics are great, posting annual double digit growth for the past five years in sales, earnings per share, book value, and return on invested capital. PG is also a huge cash cow, generating $13.5 billion in cash from operatons last year and sports a beta of .58. The management team, led by CEO A. G. Lafley, is great. According to Warren Buffett, great people work for great leaders. So, I am concluding PG has attracted great talent.

And speaking of Warren Buffett, Mr. Buffett has made PG his fourth largest publically traded company in the Berkshire Hathaway (NYSE symbol BRK.A) portfolio. If PG is good enough for Buffett, then it certainly is good enough for me.

One concern that I have with PG is it appears to be selling at a 30% premium to fair market value (I calculate the fair market value of PG to be $51.12). But based on its historical P/E ratio of 22.7 and analysts' projected earnings growth rate of 11.6%, the share price has room to grow to $77 in twelve months, providing a potential return on investment of 17.5% at the current price. $77 is realistic as PG's 52-week high is $75.18.

Pierre Cutler
The Sacramento Executive