Stock Market: This Historic Cleaning Product Company Could Add Some Shine to Your Portfolio

The pandemic has created a new corporate hierarchy of winners and losers.

We all know who the losers are. Any company in the travel and hospitality sector falls into that category. So do oil companies, REITs, and car manufacturers.

The winners are fulfilment companies like Amazon, big box retailers such as Walmart and Costco, and any company that offers face-to-face on-line communication.

There’s also another category that some people tend to overlook. They are the companies that make products that everyone is desperately trying to buy these days — cleaners and sanitizers.

Have you tried to buy a container of disinfectant spray lately? Or a pack of sanitizing wipes? Forget it! Amazon has a notice on its website saying they’re all reserved for front-line workers. The suppliers can’t keep up with the demand.

One of the firms in this sweet spot is The Clorox Company (NYSE: CLX), which recently reported its biggest sales increase in nearly a decade.

In addition to bleach, which was the company’s only product when it was launched back in 1913, Clorox now produces a wide range of disinfectants for both home and institutional use. They include disinfectant wipes, Spore Defense Cleaner Disinfectant, Citrace Hospital Disinfectant, and many more.

The company experienced an unprecedented 500 per cent surge in demand for its key cleaning products after the virus hit. Despite moving to a 24/7 production schedule and sourcing more supply from third parties, it still couldn’t keep up.

“We acknowledge our products aren’t consistently in stock, and there’s more to do,” said CEO Benno Dorer. “We put Clorox disinfecting wipes on store shelves every day and find that people scoop them up almost as soon as they’re delivered. But we are partnering with our retailers to serve consumers’ needs as best we can and expect continued meaningful movement in our ability to meet demand this summer. We are also making considerable investments to increase capacity for the mid-term, applying what we’ve learned from this crisis to be prepared for a surge in demand in the future.”

Clorox produces more than disinfectants. The briquets you use on your barbeque may be from them (Kingsford). Your kitchen garbage bag may be one of their products (Glad). The product you pour in the sink to clean the drain may be theirs (Liquid Plumr). Clorox also makes Pine-Sol, Hidden Ranch salad dressings, Calm (a dietary supplement), Fresh Step cat litter, and more.

As you might expect, given the spike in demand for its products, Clorox is doing very well from a financial perspective. Third-quarter 2020 earnings released last month, showed sales growth of 15 per cent and a 31 per cent increase in earnings per share.

The company reported net sales of almost $1.8 billion for the three months to March 31, up from just under $1.6 billion in the year-before period. Net earnings were $241 million ($1.89 per share, fully diluted) compared to $187 million ($1.44 per share) in the third quarter of fiscal 2019. (Figures in U.S. dollars.)

Year-to-date net cash provided by operations was $806 million compared to $603 million in the year-ago period, for an increase of 34 per cent.

The company increased its earnings forecast for the current fiscal year to $6.70 to $6.90 per diluted share.

Shortly after the results came out, Clorox announced a 5 per cent increase in its quarterly dividend, to $1.11 per share ($4.44 per year). The yield is 2.16 per cent at this rate.

The main negative is that Clorox stock is not cheap. The shares are up about 30 per cent so far this year, from a close of $153.54 on Dec. 31. At the recent price, the trailing p/e ratio was 30.09 – not outrageous for a company whose earnings appear poised to grow, but not cheap either.

I recommend Clorox for current and long-term growth, and you also collect a reasonable dividend. However, given the high price you may wish to buy in traches — perhaps one-third of your position now and the rest on dips over the next few months.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.

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