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Kimberly Clark Corp (KMB), W.W. Grainger, Inc. (GWW): An Attractive Opportunity Still Exists Despite the Market’s Run Up

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The Dow Jones Industrial Average is at an all-time high near 15,000. In 2009, when it fell below 7,000, most investors (including myself) could not have fathomed that it would get to this level so quickly. This is a reminder that the stock market is the best investment vehicle over the long haul for growing your nest egg. It is exciting to watch the Dow achieve the 15,000 level, but the downside is that a large number of stocks have gone up to the point to where they are overvalued.

Two compelling examples of overvalued companies

Kimberly Clark Corp (NYSE:KMB) is a consumer products company with annual sales of $21 billion. Its impressive portfolio of brands include Huggies, Kleenex, Scott, and Pull-Ups. Although these brands are popular, economic growth is slow and competition is intense, creating a challenging operating environment.

In the first quarter, its revenue was relatively flat and earnings increased 14% from last year. Kimberly Clark Corp (NYSE:KMB)’s FORCE (Focused on Reducing Costs Everywhere) program was responsible for $85 million in cost savings, which provided a boost to their earnings growth. While this is a significant achievement, cost reductions can only go so far, and eventually, sales must grow at a quicker pace.

Kimberly Clark Corp (NYSE:KMB)’s dividend yield is slightly over 3% and their impressive dividend includes 41 years of consecutive annual dividend increases. The dividend has increased by a total of 40% over the last five years. Their payout ratio of 65% is higher than I prefer, but the dividend growth should continue at a moderate level.

W.W. Grainger, Inc. (NYSE:GWW) is a distribution company serving the industrial and large commercial industries with annual sales of $9 billion. They distribute over 400,000 products including tools, motors, office supplies, and batteries. W.W. Grainger’s first-quarter earnings were positive. Earnings increased 13%, resulting in a significant improvement over the previous two quarters.

W.W. Grainger’s dividend yield is 1.50% and their impressive dividend history includes 42 years of consecutive annual dividend increases. Their dividend has doubled over the last five years and with a payout ratio of 32%, their impressive dividend growth should continue.

Kimberly Clark Corp (NYSE:KMB) has a P/E of 23 and W.W. Grainger has a P/E of 25. Both of these are higher than the S&P 500’s current P/E of 18.5. Over the last three years, the share prices of both of these companies have made impressive runs. Kimberly Clark Corp (NYSE:KMB) increased from $60 in 2010 to its recent all-time high of $105, and W.W. Grainger increased from $100 in 2010 to its recent all-time high of $250.

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