<p>Clorox (NYSE: CLX) stocks, one of the most boring stocks on the market in the last decade, have suddenly become a safe haven thanks to the coronavirus from China.
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To date, the CLX share has risen by almost 10% while the S&P 500 has fallen by more than 20%.
The market will return after the pandemic, but does that mean Clorox will fall? This is the question investors asked when trading opened on March 25.
The CLX stock sold for over $ 171 per share, a market capitalization of $ 21 billion and a price / profit ratio of 26.8. It is higher than Microsoft (NASDAQ: MSFT).
Bullfallet on CLX stock
Part of the debate is about whether lifestyle changes carried out by coronavirus are temporary or permanent.
InvestorPlace analyst Matt McCall is on the permanent side. The share was damaged by price increases last year, which are now gratefully absorbed, he writes. Disinfection has become a new norm, which should mean a permanent boost in the company’s sales.
UBS analyst Steven Strycula agrees. He sees a 40 percent increase in earnings per share. He believes sales will increase even if Clorox advertising declines, as it did when demand exploded. The cost of resin, an important ingredient, should also fall with lower oil prices.
InvestorPlace Josh Enomoto also sees disinfectants as an exciting catalyst for CLX stocks. A list of disinfectants from the US Environmental Protection Agency became a goldmine for the stock. He sees permanent changes in behavior coming, as more pandemics can occur at any time.
The downside is that Clorox may be everyone’s favorite right now, but it’s simply too expensive. The shares hit their first record price in February, before the crisis hit. The gains made since then can quickly fade.
Most of Clorox’s revenue comes from products other than disinfectants. Clorox makes Kingsford carbon. Happy sandwiches do. It is home to Fresh Step and Scoop Away litter. It is home to Liquid Plumr Sewage Cleaners. Clorox even makes Hidden Valley Ranch salad dressing and Burt’s Bees skin care products. Disinfection products make up only 25% of Clorox’s revenue.
Hysteria for detergents and disinfectants has cleared store shelves. But that hysteria will fade, even if sales do not. Even before the pandemic, CLX shares were expensive. This despite the sales growth of just 1% last year and 2.5% the year before. Net profit has not improved since 2018.
Even some of the bullish calls from analysts are buying stocks at lower levels. This is a stock that may not be worth hunting for.
The conclusion of the Clorox share
Clorox acknowledges that its happiness should not go to shareholders. It has so far pledged $ 5 million to groups fighting the virus, such as the Emergency Response Fund run by the Centers for Disease Control and Prevention.
Buying CLX shares today is a bit like buying Costco Wholesale (NASDAQ: COST). It’s a good company. You can trust it. But you are buying it right now for defensive reasons to preserve your capital, at least at current prices.
Finally, the Clorox story offers another example of a standard investment price, the need for diversification. Do not store all your eggs in one basket. Own defensive stocks as well as growth stocks. Trends can turn around for a penny and the best portfolios are always balanced against them.
That does not mean you are selling Amazon (NASDAQ: AMZN) and buying Clorox while Amazon is going to heaven. This means that you keep stocks like Clorox in your portfolio on a rainy day.
Dana Blankenhorn has been a finance and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in MSFT and AMZN.