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The Clorox Co (CLX), Staples, Inc. (SPLS), Wal-Mart Stores, Inc. (WMT): Invest in the Bare Necessities

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Staples (SPLS)Companies that supply us with goods that we need operate in a very stable part of the economy. They are rarely in the news because there is typically no news to share. Unless there is a mass “staining” across the country, The Clorox Co (NYSE:CLX) will continue to sell about the same amount of bleach.

That was easy

Staples, Inc. (NASDAQ:SPLS) has strong business-to-business relationships and the third-strongest retail brand name on the Internet behind Amazon.com, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT). Staples, Inc. (NASDAQ:SPLS)’s Internet sales account for 42% of sales, and come with less overhead than the company’s retail operations. This is why Staples, Inc. (NASDAQ:SPLS) has been able to outperform its peers.

It has taken charges for closing physical stores, which contributed to a drop in sales of 2% in 1Q 2013 versus 1Q 2012. In 2013, Staples, Inc. (NASDAQ:SPLS) is looking to drive savings of over $150 million, while having net store closures of between 40 and 45 locations.

Staples, Inc. (NASDAQ:SPLS) was seeing customers shift from computers and business machines to tablets and traditional office and facility supplies. This was contributing to lower revenue, as the big-ticket items are shrinking in volume. Staples, Inc. (NASDAQ:SPLS) saw its operating margin come in at 7.3%. It pays out 35% of its earnings to support a dividend of 2.9%, the highest yield in its sector.

Staples’ management is expecting to generate more than $900 million in free cash flow in 2013, and will continue to repurchase stock. At the current rate, Staples’ will repurchase nearly 4% of its shares outstanding per year.

Throwing money away could be a good thing

The Clorox Co (NYSE:CLX) has an extremely stable consumer-goods orientated lineup of products. What better business model can a company have than the Glad garbage bag? Purchase this product, and intend to throw it away; repeat.

Its flagship product, Clorox bleach, is an item that sells itself with a strong brand name. Regardless of the economic state of the nation, people will still be buying bleach. The Clorox Co (NYSE:CLX)’s other products are also staples throughout the consumer world; its pet-products division has some of the most loyal consumers around.

Since 2003, The Clorox Co (NYSE:CLX)’s worst year, it has produced an astounding $340 million in free cash flow. The company spends 59% of its earnings to support a 3.4% dividend yield. The Clorox Co (NYSE:CLX) has a net profit margin of 10% and has increased its dividend an average of 13.2% over the past five years. In addition to the robust dividend growth, The Clorox Co (NYSE:CLX) has reduced its share count by 7.4% over the past four years, giving existing shareholders a greater share of its earnings.

This past year, Clorox saw 10% growth in its disinfecting products as it continues its expansion overseas. The company expects mild revenue growth in the overall portfolio of 3% to 5% worldwide, with an increase in margins of 0.2% to 0.5% next year. Since Clorox operates in a mature market place, its growth is driven mostly by overseas expansion and this growth target is both appropriate and realistic. Clorox’s shareholders can expect to be rewarded over the long term.

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