Household and Personal Care Portfolio Candidates: The Clorox Company (CLX), Colgate-Palmolive Company (CL)

Page 1 of 2

If you read many of my posts then you should know that I love Consumer Goods Companies (CGC). I wrote many times about beverage champions, such as AB InBev, but I am now trying to dig into the Household and Personal Care Products (HPC) sub sector. I think that, right now, this sub sector should be a part of any long term portfolio focused on quality and income stability because (a) HPC is a Defensive sector (it does best in times of macro uncertainty, but rarely under performs the S&P), (b) Valuations are in line with long term average for most stocks, and (c) Reasonable earnings consensus expectations assure that your portfolio will not suffer aggressive bumps going forward. In this post I will review three corporate leviathans and decide which one(s) would be the best candidate(s) for a prudent portfolio looking for a growing cash yield.

The Clorox Co (NYSE:CLX)The Procter & Gamble Company (NYSE:PG), the biggest CGC group by sales, just reported results a few days ago and ameliorated its Earnings Per Share (EPS) and organic sales growth outlook for the fiscal year ending in June. The share price automatically jumped 4% on the news, but I am convinced that there is plenty of room for further outlook amelioration going forward. During the last few years, PG has been growing sales at a 3% yearly rate and growing its dividend by high single digits. I think that this is about to change for the best. Great investors such as Bill Ackman who, through his hedge fund Pershing Square, owns about 1% of the company are putting pressure on management to cut costs (PG has a $10 billion cost cutting plan in place) and boost productivity while increasing top line growth. Looking at PG’s numbers it’s clear that there is plenty of room for improvement. In the future, I see top line growth and earnings growth to be more in line with peers (growing sales at 5/6% and earnings at 10%). That said, PG trades at 2013 17x P/E and is expected to deliver a 5% Free Cash Flow (FCF) yield while paying a 3.3% cash dividend yield. This price already reflects a successful turnaround. I like the story but the price seems already rich. I think there are better opportunities on the street.

Colgate Palmolive Company (NYSE:CL), which is less than one third the size of PG, shows much better top line growth and margins than its biggest peer. While PG has better margins in the slowly growing developed world than CL (25% versus 20%), Colgate has considerably better margins in high growth Emerging Markets (30% versus 10%). It’s also relevant to mention that over 50% of CL’s sales come from Emerging Markets while just under 60% of PG’s revenues come from the developed world. CL also offers a great portfolio of products with low price elasticity and, hence, the company enjoys much better pricing power than most of its peers. Besides, CL is implementing a program to improve cost efficiency which, from its relative size, is in line with PG’s $10 billion plan. Growing sales at the 3 year average rate of 6% and trading at 2013 18x P/E while generating a 5% FCF yield I think CL is one of the names to own in this sub sector.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!