Clorox Co (CLX) is the Rodney Dangerfield of blue-chip stocks — it can’t seem to get any respect. And that is a very good thing for us.
On Tuesday, Clorox reported its fiscal third-quarter earnings, beating Street estimates on both earnings and revenue. The stock reached its all-time high on the news and has since retreated slightly.
In the past 24 months CLX has risen 50%. Pretty impressive for a company that sells bleach and barbecue sauce.
But Clorox has always punched above its weight. When you can build a business empire that stands for 103 years on bleach, you’re doing something right. For the first 56 years, Clorox only sold bleach. Since then, it’s added a well-curated array of consumer and professional products, including Pine Sol, Glad, Kingsford, KC Masterpiece, Brita and Burt’s Bees, among others.
It has patiently added brands that add value as well as aisle space throughout the grocery store. It also has a number of professional products that also deliver the quality and price that its consumer brands do.
What makes Clorox’s mix unique is nearly 90% of its products are either No. 1 or No. 2 in their categories. This makes its ability to generate revenue much easier than its massive competitors Kimberly Clark Corp (KMB) and the Colgate-Palmolive Company (CL).
The two big hitters have far more products across their various lines, but that means they’re competing among themselves as much as they are against competitors. Clorox avoids this problem by simply owning the top brands in a variety of sectors. This prudent strategy has meant that CLX remains relatively small (a $15 billion market cap) compared to KMB ($46 billion) and CL ($63 billion).
Again, Clorox knows how to use size to its advantage. It has built markets in over 100 countries and has manufacturing plants in two dozen countries without having to bulk up to do it. That’s patience and good management.
Clorox recently purchased Renew Life, a probiotics and digestive health company. According to Fortune, the digestive health sector has become a $10 billion a year business that’s growing 7% a year. Just the probiotic sector is a $1.3 billion business that’s growing 15% a year.
This is a perfect example of how Clorox chooses it brands. This market was completely under most firms’ radar, yet the company saw opportunity to enter the market before everyone else and then use its distribution channels to dominate the sector as it matures.
But with all this going for it, Wall Street just can’t seem to like it. Only one brokerage firm rates CLX a buy, seven call it a hold and four recommend selling. And in the last quarter short interest on CLX stock rose 12%. Its bump to all-time highs after earnings was partially a short squeeze on these dumb short positions.
Remember, CLX is a dividend aristocrat. It has raised its dividend every quarter since 1978. That’s 38 years of consistent dividend growth. Currently the dividend yield is a sturdy and respectable 2.3%.
What’s more, it’s a bargain. CL is selling at a P/E of 47, KMB is at 42, while CLX goes for 25 times earnings.
This tells me the herd is following CL and KMB rather than seeing the value and opportunity in CLX shares.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool,PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
