Read the Ten Cheap Products Making American Companies Billions

All of the companies that make the most money from selling inexpensive items have exceptionally strong brands. They are highly recognizable and held in high regard. Coca-Cola, which makes billions of dollars off its trademark drink Coke, is the most valuable brand in the world, according to brand valuation company Interbrand. According to Brand Z, McDonald’s, producer of the world’s favorite french fries, is the most valuable brand. Other brands, such as Cheerios, Campbell’s, and Starbucks, are also instantly recognizable.

These products have such strong brands partly because their parent companies spend huge sums of money on advertising. In 2011, Procter & Gamble, maker of Gillette razors, spent $9.3 billion on ads for all products — 11.3% of its total sales. This amount increases substantially each year, reflecting the lengths companies must go to preserve market share. Ian Cook, chief executive of Colgate-Palmolive, recently promised “increased advertising support behind many new and existing Colgate products” in 2012 to protect its global standing. The company said it had increased advertising spending in the fourth quarter to $428 million, up 5% from one year ago.

Additionally, these brands benefit from having been around for years and having existed in the public conscious a very long time. Products such as Coke, Colgate toothpaste, and Dole bananas have been around since the 19th century. Campbell’s soup and Cheerios have been household staples since the middle of the 20th century. Consumers have grown to trust the brands and expect a certain level of quality.

24/7 Wall St. reviewed the 500 largest companies by sales to identify the ones that focus on inexpensive consumer goods and low-priced food products. We then looked at the most inexpensive products sold for less than $5 and hold the highest market share. These are the cheapest products making American companies billions.

On an adjusted basis, P&G sees Fiscal 2012 earnings of $4.00 to $4.10 EPS and total sales up about 3% to 4%.  Thomson Reuters has a consensus earnings estimate of $4.17 EPS and $86.15 billion.  That would be a tad light on earnings and up to $1 billion light on revenues.

Higher commodity costs are expected to be a drag on third quarter earnings and a unfavorable product mix and an unfavorable geographic mix are all also dragging on earnings for the current quarter.  For the rest of the year, foreign exchange is expected to hurt sales by about 3% to 4%.

Rival Kimberly-Clark Corporation (NYSE: KMB) already took it on the chin this week after its earnings, while Colgate-Palmolive Company (NYSE: CL) has traded higher after its earnings.  Many investors have been moving to more risk-trade investments rather than defensive stock trades this week after Ben Bernanke telegraphed that the FOMC believes interest rates will remain exceptionally low through the end of 2014.

Kimberly-Clark now yields almost 4% and P&G yields about 3.2%, while Colgate-Palmolive yields almost 2.7%. 

P&G shares are indicated down 1.3% at $63.95 and the 52-week trading range is $57.56 to $67.72.

JON C. OGG

Most of the largest companies in the U.S. will not have large earnings swings from last year, with the notable exception of financial firms. The majority of banks and investment houses will suffer earnings declines because of poor trading results and bad loans, notwithstanding the fact that JPMorgan Chase (NYSE: JPM), arguably the best-run bank in America, is on this list, as is Wells Fargo (NYSE: WFC) . Corporations like IBM (NYSE: IBM) and Procter & Gamble (NYSE: PG) have such huge customer bases worldwide that they can hardly outperform the global economy. What differentiates them is their ability to manage their operations better than peers as they keep expenses low and take all the advantages they can of their significant market shares.

24/7 Wall St. looked at the top 200 companies in the Fortune 500 based on the revenue in the past reported year. We then reviewed earnings and earnings forecast from Thomson/First Call. There were some cases in which earnings appeared to be too low or too high because of events in the past month. We took those into account when we produced the final numbers.

This is 24/7 Wall St.’s 10 Most Profitable Companies for 2012.

The DJIA jumped above 12,000 in the opening minutes of trading this morning and had topped 12,200 by mid-afternoon. European Union leaders have agreed on a deal that would make up to $1.4 trillion as a bailout fund for troubled European banks, offer a 50% haircut to Greek debt holders, and recapitalize the continent’s banks. Apparent euphoria over the deal in Europe caused investors to miss the weak number on pending home sales. The euro rose to more than $1.42, its highest level in nearly two months, and oil prices were about $3/barrel higher this morning and had gained nearly another dollar by mid-afternoon. The day closed with a few uncertainties still remaining on the agreement announced earlier in Europe.

The unofficial closing bells put the DJIA up nearly more than 340 points to 12,209.23 (2.87%), the NASDAQ rose nearly 88 points (3.32%) to 2,738.63, and the S&P 500 rose 3.43% or more than 42 points to 1,284.54.

There were several analyst upgrades and downgrades today, including Ford Motor Co. (NYSE: F) maintained at ‘neutral’ with price target cut from $16 to $14 at Credit Suisse; Netflix Inc. (NASDAQ: NFLX) cut to ‘neutral’ at Citigroup (ahem!); Itron Inc. (NASDAQ: ITRI) started at ‘outperform’ with a $60 price target at Credit Suisse and maintained at ‘buy’ with a $50 target at Canaccord Genuity; Visa Inc. (NYSE: V) cut to ‘market perform’ at FBR; and Range Resources Corp. (NYSE: RRC) reiterated at ‘sell’ by Canaccord Genuity.

Here are today’s big post-earnings news reactions with prices during the last half-hour of trading: Proctor & Gamble Co. (NYSE: PG) up about 0.5%, at $65.25; Colgate Palmolive Co. (NYSE: CL) up about 1%, at $91.49; Exxon Mobil Corp. (NYSE: XOM) up 0.84%, at $81.75; Occidental Petroleum Corp. (NYSE: OXY) up nearly 11%, at $96.59; Barrick Gold Corp. (NYSE: ABX) up nearly 2.5%, at $48.98; Johnson Controls Inc. (NYSE: JCI) up 2.2%, at $33.32; Bristol Meyers Squibb Co. (NYSE: BMY) up 1.8%, at $33.10; and Altria Group Inc. (NYSE: MO) up 1.5%, at $27.69.

Several other standouts from today are as follows…

QuickLogic Corp. (NASDAQ: QUIK) is up nearly 25%, at $2.87. The company announced an agreement under which mobile phone maker Kyocera will use QuickLogic chips in new products for the Japanese market.

Kelly Services, Inc. (NASDAQ: KELYB) is up nearly 28%, at $16.75. The company is set to announce earnings on November 9th, and is glimmering in the glow of a solid earnings report today from Monster Worldwide, Inc. (NYSE: MWW).

LDK Solar Co. Inc. (NYSE: LDK) is up more than 21%, at $4.00. Germany has announced another cut to its solar power feed-in tariff at the first of the year, and that could unleash a horde of new projects to take advantage of the current higher tariff rate.

Century Aluminum Co. (NASDAQ: CENX) is up more than 19%, at $11.74. The company reported an EPS loss yesterday, even though sales were up 24%. Investors must like the revenue report more than they hate the EPS loss.

McDermott International Inc. (NYSE: MDR) is down nearly -26%, at $10.85. The engineering and construction company lowered its third-quarter profit and revenue guidance. Analysts were expecting EPS of $0.29 and McDermott is now saying EPS will be just $0.03-$0.05.

Avon Products, Inc. (NYSE: AVP) is down about -18%, at $18.87. The company missed its earnings expectations, but the worse news is that the SEC have begun a formal investigation into bribery charges against the company for actions it took in foreign markets.

Stay tuned for Friday.  We have noted the following events (all times Eastern):

• 8:30 a.m. – Consumer spending
• 8:30 a.m. – Employment cost index
• 9:55 a.m. – Reuters/University of Michigan consumer sentiment index

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Paul Ausick

The most attractive stock investments for periods when GDP growth stalls are those of corporations that proved they could improve sales during the 2007-2009 recession. Many of these corporations have additional attractions. They often generate so much cash they can afford to pay large dividends. This gives investors yields when the value of many equities fall due to concerns about the economy and in a period that interest rates on bonds are near all-time lows.

Recession-resistant companies are also often part of recession-resistant industries. Many of these industries’ sales come from a number of countries around the world. Their sales may slow in the U.S. and Europe, but remain strong in emerging nations. Coke and P&G are examples of corporations in such industries. Other companies are in sectors whose products are used in almost any economic environment. Tobacco companies like Altria and Reynolds American are examples of these. Still other industries have companies that have appeal in an economic downturn. McDonald’s, which offers many meals for a few dollars, often prospers when people cannot afford fresh groceries or more expensive restaurants.

24/7 Wall St. picked its recession proof companies by choosing: 1) corporations with revenue that grew during the last recession or where sales dropped slightly and profits rose, 2) companies in industries that are not usually sensitive to changes in the economy, 3) corporation that have demonstrated they have the balance sheet to pay large cash dividends, 4) corporations that are large enough to be among the most dominant companies by sales or market share within their sectors, and 5) stocks that trade within 10% of their 52-week highs. With the S&P 500 near a one year low, these are obviously companies that Wall St. thinks will do well over the next several quarters.

This is the 24/7 Wall St. “America’s Recession-Proof Companies”

Apple Inc. (NASDAQ: AAPL) Started as Buy with $495 target at Janney.
Caterpillar Inc. (NYSE: CAT) Started as Overweight at Barclays.
Charter Communications Inc. (NASDAQ: CHTR) Started as Overweight at JPMorgan.
Colgate-Palmolive Co. (NYSE: CL) Cut to Hold at Citigroup.
Comcast Corporation (NASDAQ: CMCSA) Started as Overweight at JPMorgan.
Comerica Incorporated (NYSE: CMA) Raised to Market Perform at Wells Fargo.
Deere & Co. (NYSE: DE)  Started as Overweight at Barclays.
DIRECTV (NASDAQ: DTV) Started as Overweight at JPMorgan.
Imperial Holdings, LLC (NYSE: IFT) Cut to Market Perform at FBR.
Kimberly-Clark Corporation (NYSE: KMB) Cut to Hold at Citigroup.
Lam Research Corporation (NASDAQ: LRCX) Started as Overweight at JPMorgan.
Men’s Wearhouse Inc. (NYSE: MW) named value stock of the day at Zacks.
Novellus Systems, Inc. (NASDAQ: NVLS) Started as Overweight at JPMorgan.
NutriSystem Inc. (NASDAQ: NTRI) Started as Buy at Auriga.
Polo Ralph Lauren Corp. (NYSE: RL) Cut to Hold at Citigroup.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) Started as Buy at Canaccord Genuity.
VeriFone Systems, Inc (NYSE: PAY) Started as Buy at Argus.
Warner Chilcott plc (NASDAQ: WCRX) Started as Buy at Canaccord Genuity.

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JON C. OGG

Applied Materials Inc. (NASDAQ: AMAT) Cut to Sell at Goldman Sachs.
Avis Budget Group (NYSE: CAR) named as Bull of the Day at Zacks.
Bristol-Myers Squibb Company (NYSE: BMY) Raised to Buy at Jefferies.
Broadcom Corporation (NASDAQ: BRCM) Raised to Outperform at William Blair.
Citi Trends, Inc. (NASDAQ: CTRN) named as Bear of the Day at Zacks.
Colgate-Palmolive Co. (NYSE: CL) Added to Focus 1 List at BofA/ML.
Enbridge Inc. (NYSE: ENB) Started as Outperform at Scotia.
Huntsman Corporation (NYSE: HUN) Reinstated as Neutral at BofA/ML.
Lam Research Corporation (NASDAQ: LRCX) Cut to Neutral at Goldman Sachs.
Micron Technology Inc. (NASDAQ: MU) Raised to Neutral at Goldman Sachs.
Pier 1 Imports, Inc. (NYSE: PIR) Raised to Buy at KeyBanc.
Renren Inc. (NYSE: RENN) Started as Underperform at Macquarie.
Telefonica, S.A. (NYSE: TEF) Raised to Buy at UBS.

See last week’s top analyst calls here.

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JON C. OGG

24/7 Wall St. has evaluated the following consumer products companies: Church & Dwight Company, Inc. (NYSE: CHD); Clorox Corporation (NYSE: CLX); Colgate-Palmolive Company (NYSE: CL); Kimberly-Clark Corporation (NYSE: KMB); and Procter & Gamble Company (NYSE: PG).

What is amazing here is that these valuations in many cases are not representative of traditional “value” when it comes to price to earnings ratios, book value, or even in return on equity.  Still, there are some solid dividends and if you want a sector that is likely to withstand a hard economy better than other risky sectors it is this consumer products sector.

Church & Dwight Company, Inc. (NYSE: CHD) recently traded at $42.64 and its market cap is $6 billion.  The stock’s 52-week trading range is $30.54 to $44.09. The current value is trading at a price-to-book ratio of about 3 to 1.  Its forward price earnings multiple is 15.2 and its return on equity is 14.95%.  The consumer products company currently pays a dividend yield of 1.6% to investors.  Thomson Reuters has a consensus price target of $43.11, implying an upside of about 2% to the most recent price. If there is one company which performed throughout the malaise it is C&D.  It has brands like Trojan, Arm & Hammer, Nair, Oxi Clean, XTRA and more.

Clorox Corporation (NYSE: CLX) recently traded at $68.91 and its market cap is $9 billion.  The stock’s 52-week trading range is $59.08 to $74.83.  Its forward price earnings multiple is 15.6.  The consumer products company currently pays a dividend yield of 3.5% to investors.  Thomson Reuters has a consensus price target of $69.92, implying roughly 1.5% upside to the most recent price.  Clorox is currently difficult to evaluate because of the Carl Icahn offer and intrusion to move the company to seek a higher buyer.  As such, we are leaving this one as is, but some of its brands are Clorox, Burt’s Bees, Glad, Kingsford charcoal, Hidden Valley, Pine-Sol and more.

In the Clorox deal, Icahn would like to initiate a competitive auction for Clorox with potential buyers like Proctor & Gamble Co. (NYSE: PG), Colgate-Palmolive Co. (NYSE: CL), Kimberley-Clark Corp. (NYSE: KMB), and Japanese giant Kao Corp. Clorox’s board has already rejected Icahn’s latest move, a so-called ‘back-stop’ offer which is predicated on Icahn’s success in replacing the 11 current directors. If he manages to do that, and is still unable to find a buyer for Clorox, Icahn will buy the company himself for $78/share in cash and debt. Clorox has not yet scheduled its 2011 annual meeting, putting off the vote Icahn seeks to replace the company’s directors.

Dumping Lions Gate acknowledges that Icahn doesn’t believe the company is worth all the headaches. Icahn has long argued that Lions Gate should get out of the production business and instead focus on distribution of independent films. Lions Gate has lost money in three of the last four quarters, proving Icahn’s point to some degree. The $7/share price that Icahn will take for the shares is approximately what he paid for them.

There are some other weak spots in Icahn’s portfolio. Dynegy Inc. (NYSE: DYN) has been stumbling due to weak natural gas prices. Icahn and Seneca Capital own the company, which is mostly high-priced debt. The problem here is whether or not there is a taker for Dynegy. It’s struggles with debt and low prices will continue.

Another possible dump would be Chesapeake Energy Corp. (NYSE: CHK), and not because the stock is a particularly bad performer. The natural gas giant is just too big, at a market cap of nearly $21 billion, for Icahn to have much influence without making another big purchase of Chesapeake’s stock. The offer for Clorox could also force Icahn to raise some cash, if the deals breaks Icahn’s way.

Icahn also holds about 19% (about 60 million) of outstanding shares in Motorola Mobility Holdings, Inc. (NYSE: MMI), which Google Inc. (NASDAQ: GOOG) has offered to pay $40/share for.

Icahn also owns about 25% of Mentor Graphics Corp. (NASDAQ: MNTR), a relatively small computer software maker with a market cap of just under $2 billion. The company doesn’t look to be on either a growth path or a decline path. Neither is particularly good for Icahn over the short term.

Lions Gate’s shares are down more than -5% in the pre-market this morning, at $7.13, in a 52-week range of $5.69-$7.84. Clorox shares are down fractionally in the pre-market, at $70.50, in a 52-week range of $60.56-$75.44.

Paul Ausick

Kraft may be winning today in defensive stocks, but that is because of its break-up.  It is some of the other stocks in our go-to defensive list that are holding up very well today.  These all have dividends and will have business whether Europe and other worries torpedo the stock market or not.  And on a day like today, we are looking for companies that are only down less than half the broader market. These winners or “less of losers” are in the following: Pepsico, Inc. (NYSE: PEP); ConAgra Foods, Inc. (NYSE: CAG); Campbell Soup Company (NYSE: CPB); McDonald’s Corporation (NYSE: MCD); Altria Group, Inc. (NYSE: MO); Vector Group Ltd. (NYSE: VGR); Procter & Gamble Company (NYSE: PG); Colgate-Palmolive Company (NYSE: CL); Kimberly-Clark Corporation (NYSE: KMB); Johnson & Johnson (NYSE: JNJ); and American Water Works Company, Inc. (NYSE: AWK).

If you can eat it and drink it…

Pepsico, Inc. (NYSE: PEP) $64.49, actually up $0.01 probably because it has a snack-food business like Kraft that could be spun off if it wanted to.  Do not hold your breath for Pepsi to bust up its empire.  The 3.3% yield helps too. Percent from 52-week high: 10.7%.

ConAgra Foods, Inc. (NYSE: CAG) is down only 1.4% at $24.73 and it has a 3.7% yield.  It could have some break-up too but Kraft was different than ConAgra.  Percent from 52-week high: 7.5%.

Campbell Soup Company (NYSE: CPB) is down 1.2% at $32.54 with its 3.6% dividend yield but the company already outlined some of its challenges ahead.  Percent from 52-week high: 14.0%.

McDonald’s Corporation (NYSE: MCD) is a winner even when it loses as “the you gotta eat somewhere” move steers folks to Micky D’s.  After having recently hit new all-time highs, it is down only 0.25% at $85.32.  Its dividend is just under 3% now. Percent from 52-week high: -5.1%.

Can I bum a smoke?…

Altria Group, Inc. (NYSE: MO) is down 0.6% at $26.18.  Do you need an explanation beyond the 5.9% dividend yield? Percent from 52-week high: -7.7%.

Vector Group Ltd. (NYSE: VGR) is down only 0.2% at $17.49 and it has closer to a 9% dividend yield.  If Obama and Boehner both smoke, they probably had many more smokes in the last month than normal. Percent from 52-week high: -16.3%… that is down enough you might wonder how ‘defensive’ it is.

Shaving, deodorant, diapers and more….

Procter & Gamble Company (NYSE: PG) is down only 0.4% at $60.49 with its 3.4% dividend. Percent from 52-week high: -11.0%.

Colgate-Palmolive Company (NYSE: CL) is down 0.5% at $83.91 with a 2.7% yield.  Percent from 52-week high: 6.5%.

Kimberly-Clark Corporation (NYSE: KMB) is down a bit more at -1% at $63.89, but it offers the best yield in consumer products at 4.3%. Percent from 52-week high: 7.1%.

Johnson & Johnson (NYSE: JNJ) is the real medical or drug winner on a day where drug stocks are not holding up, but it also has consumer products.  J&J is down ‘only’ 0.9% at $62.83 with a 3.6% yield.  Percent from 52-week high: 8.0%.

H2O, You Know You Need Water…

American Water Works Company, Inc. (NYSE: AWK) had earnings that went well to the higher part of guidance but profit taking has come here too.  Shares are down 1.2% at $27.95 and that takes it back within striking distance of the 10% correction from the high.  It almost never gives a 10% pullback opportunity for buyers. The 3.3% dividend can’t be too bad either. Percent from 52-week high: 9.0%.

*****

The DJIA is down 2.7% or 324 points to 11,571.53 today.  When you see stocks down half that amount or almost up on the day, it doesn’t take a rocket scientist to figure out that money is not fleeing these names.

JON C. OGG