Fling up the sash and let the fresh air in, it’s time to clean up that portfolio. While spring cleaning isn’t the tradition it used to be, the consumer staples stocks associated with cleanliness are good defensives to freshen your portfolio before any “sellabration” in May.
A century of clean
The Clorox Company (NYSE:CLX) has been selling its household cleaning products for 100 years and has branched out into plastics (shades of The Graduate) with bags and wraps as well as some limited food offering and personal products including Burt’s Bees.
Clorox has a 19.62 P/E with a 3.00% yield at a 58% payout ratio. Like many other consumer staples that have run, Clorox hit a 52 week high of $85.33 on Mar. 6. Clorox is in the exalted position of being a Dividend Aristocrat, having consistently raised its dividend for 35 years. It’s also been buying back shares since 2005.
Although the company turns 100 in May, it’s been pushing product innovation across all its brands. The new generation is very health aware and The Clorox Company (NYSE:CLX)’s sanitizing and antimicrobial products have benefited from every new viral outbreak and the germophobia gripping society. This year’s flu season contributed to a 13% volume increase for the best performance across all their segments coming from disinfecting wipes.
The Clorox Company (NYSE:CLX) reported strong Q2 2013 results on Feb. 4 with margin expansion, 18% EPS growth year-over-year, and a 9% bump in sales. However, the company has a PEG of 2.41 and an EV/EBITDA of 11.66. Considering its run of 23.41% over the last 52 weeks, Clorox may be overvalued. Analysts expect an 8.00% five year EPS growth rate.
Not a well-kept secret anymore
Church & Dwight, maker of Arm & Hammer baking soda, has also run 25% this last year. It’s trading near its 52-week high of $62.35 and has a 24.97 P/E with a1.80% yield at a 33% payout ratio.
It competes with Clorox on several categories like detergent and kitty litter. Church & Dwight has a personal products and cleaning products division as well as its Trojan brand of condoms and pleasure enhancing devices. It has been expanding the personal products line of deodorants and dental care with the purchase of Avid Health, a gummy vitamin company almost immediately accretive to the tune of 5%. It also has a Specialty Products Division that sells specialty chemicals for industrial uses.
The company just raised the yield 17% in January to make the Mar. 1 payout the 448th consecutive dividend. The company reported 2012 results in February and grew EPS 15.6% over the year as well as improving market share in 75% of its power brand products. The Q4 results showed an 100 basis point improvement to its gross margin.
Church & Dwight had been a well kept secret among value investors, but the Street has caught on and valuation is getting stretched with a PEG of 1.90 and an EV/EBITDA of 14.24. You can blame these consumer staple valuations on the chase for yield and safety. Analysts still expect five year EPS growth of 11.48%, and with $1.5 billion of free cash flow expected over the next few years its planned increases in marketing to raise brand awareness shouldn’t hurt the bottom line.
Can two billion people be wrong?
Unilever describes itself as a fast-moving consumer products company with four divisions: Home Care, Personal care, Refreshment, and Foods. Headquartered in London it’s also up 23.76% over the last year. It trades at a 20.66 P/E with a 3.10% yield. It has numerous popular brands known worldwide like Surf, Sunlight, Dove soap, Ben & Jerry’s ice cream, and Axe products for young men. Two billion people worldwide use a Unilever product each day.
Many of those two billion are in emerging markets. Unilever was emerging markets when emerging markets wasn’t cool making this its main advantage over these other names, its decades long head start.
Unilever plc (ADR) (NYSE:UL) hit a 52 week high on Mar. 15 of $41.46 and its EV/EBITDA is at 11.91 similar to The Clorox Company (NYSE:CLX), but the return on equity at 32.30% is good. The company’s dividend growth rate over the last 10 years is the highest of these four consumer powerhouses as you can see on the chart.
The main drawback to Unilever plc (ADR) (NYSE:UL) is the single digit growth rate of 5.48%, much lower than the industry and the sector, which averages 13.92% for the five year EPS growth rate.
The quintessential American company
Finally there’s The Procter & Gamble Company (NYSE:PG), the Cincinnati Ohio based company and Dividend Aristocrat, a favorite hold of widows and orphans for its dividend for 122 years. That yield currently stands at 2.90%. There are few companies in the world with this kind of dividend consistency.
When it comes to home care there are fewer brands better known than Tide. It’s even a black market darling and The Procter & Gamble Company (NYSE:PG)’s household care products including Dawn dishwashing liquid (the best way to clean oil soaked waterfowl after oil spills) have the majority of market share in these dish and laundry detergent categories.
But Procter & Gamble hasn’t been the grower it used to be for some time. It does have the lowest P/E of these names at 17.33 but the PEG is at 2.42 and the growth rate at 7.80% is only slightly better than Unilever plc (ADR) (NYSE:UL). It is one of the largest cap US companies at 208.53 billion and is close to an all time high.
P&G is a Warren Buffett and Bill Ackman hold. Of all these names it has run up the least (13.58%) barely outperforming the S&P 500. Its EV/EBITDA at 12.02 exhibits some valuation concerns.
However, The Procter & Gamble Company (NYSE:PG) has some tricks up its sleeve with its Gucci and Dolce & Gabbana fragrance lines, Tide freestanding dry cleaners (yes, actual bricks and mortar dry cleaners), and ZzzQuil, a non habit forming sleep aid, debuting this last year.
Clean as a whistle-the final takeaway
Which of these to buy depends on what corners of the portfolio need a tidying up: more international exposure, pick Unilever plc (ADR) (NYSE:UL); need a dependable yield, The Procter & Gamble Company (NYSE:PG) can fix you up; for growth Church & Dwight is the go to name; and for an all-around new broom go with The Clorox Company (NYSE:CLX). Wait for pullbacks.
The article Spring Cleaning Your Portfolio originally appeared on Fool.com and is written by AnnaLisa Kraft.
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