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The Clorox Company (CLX), Colgate-Palmolive Company (CL) & More: These Stocks Are Buys Even at 52-week Highs

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Investors are always looking to beat the market. Some of them hold contrarian point of views and use this way to make money. I also have a set of contrarian ideas that are expected to make some money for investors. Both the stocks discussed in detail below belong to the consumer goods sector.

The Clorox Company (NYSE:CLX)

The Clorox Company (NYSE:CLX)

Investment Thesis: The earnings momentum for The Clorox Company (NYSE:CLX) is expected to accelerate, driven by a stronger focus on innovation than in the past, and the end of an investment cycle driving margin expansion. While the company’s growth potential is somewhat limited by its category and geographic exposure, The Clorox Company (NYSE:CLX) continues to grow ahead of its underlying categories, primarily as a result of strong innovation and mix improvement.

The Clorox Company (NYSE:CLX) has established a track record for shareholder value creation by showing capital discipline, not just in terms of cost savings, but also in M&A situations and by carefully prioritizing organic growth opportunities. Clorox’s consistent long-term delivery of top-line and earnings growth is impressive.

Contrarian idea: The Clorox Company (NYSE:CLX) is probably not on investors’ radar screens due to its exposure to mature categories in developed markets. The market overlooks the capacity of this company to accelerate earnings momentum. EPS growth is expected to double from 4% to 8% in the next 18 months, driven by much stronger focus on innovation and margin increase as a result of recently completed capital investment projects.

Key Catalysts: The key data points include monthly market share statistics (such as Nielsen), and evidence that the company is not losing shelf space/market share as a new compacted bleach formulation is introduced. Negative catalysts could include rising oil/gas prices which would affect Clorox’s gross margins negatively.

Valuation: A three year EBIT growth rate of 5%, mid-term FCF growth of 5%, and a perpetual growth rate of 2% is expected from the stock. These estimates are consistent with a forward P/E multiple of 18x, which is in-line with the stock’s current multiple.

Colgate-Palmolive Company (NYSE:CL)

Investment Thesis: The company is expected to deliver industry-leading top line and high quality earnings growth, based on the analysis of Colgate-Palmolive Company (NYSE:CL)’s product category and portfolio mix.  2013-2014 EPS estimates are 2% and 4% ahead of consensus, respectively. The earnings risk seems to be limited due to strong pricing power, relatively low price elasticity in its categories, and ongoing efficiency programs. Valuation is also attractive when compared with global Consumer Products stocks with similar earnings growth profiles.

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