Procter and Gamble - no change in 2011Q2

In July 2010, we presented a model for Procter and Gamble (PG) which forecasted a period of growth from $59  in June (had fell from $62 in March 2010) to $63 in September 2010.  This model was defined by the index of food away from home (SEFV - CUUS0000SEFV) and that of rent of primary residency (RPR). The former CPI component led the share price by 3 months and the latter one led by 8 months. The prediction was right and the price reached $63.

For the past ten months, this model is also applicable with only change in the time lead for the SEFV – it is now 4 months. Overall, the model predicted a no change period. Figure 1 depicts the overall evolution of both involved indices since 2003. Considering the fact that the original model was valid for the period since September 2009, these two defining components have been providing the best fit model between August 2009 and March 2011.  Relevant coefficients are negative and positive, respectively. The slope of time trend is also positive.  So, the best-fit 2-C model for PG(t) is as follows:

PG(t) =  -5.4SEFV(t-4) + 2.93RPR(t-8)  + 18.16(t-1990) + 187.47
where PG(t) is the monthly closing price (dividend and split adjusted) in US dollars,  t is calendar time.

The predicted curve in Figure 2 leads the observed price by 4 months with the residual error of $2.14 for the period between July 2003 and March 2011. In other words, the price of a PG share is completely defined by the behaviour of these two CPI components.

The model does predict the share price in the past and foresees the period of no growth to be extended into the second quarter of 2011.
Figure 1. Evolution of the price of SEFV and RPR.

Figure 2. Observed and predicted PG share prices.

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