Value In Consumer Products Stocks: A Safety Premium (CHD, CLX, CL, KMB, PG)

In tough times, value investors look for stocks that they feel are valued in a manner which already discount much of the trouble and pitfalls ahead.  Defensive stocks are often the winners during hard times as well.  So what about when value investors decide to apply their valuation analysis to the defensive sector of consumer products?  After all, are you likely to stop using shampoo, deodorant, toothpaste, toilet paper, and on and on?

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.

Colgate-Palmolive Company (NYSE: CL) recently traded at $90.46 and its market cap is $44 billion.  The stock’s 52-week trading range is $71.63 to $91.82.  The current value is trading at a price-to-book ratio of about 14.8 to 1.  Its forward price earnings multiple is 16.2 and its return on equity is listed as being 89.1%.  Keep in mind that the net tangible assets is negative here. The consumer products company currently pays a dividend yield of 2.6% to investors.  Thomson Reuters has a consensus price target of $87.93, roughly 2.9 % below the most recent price.  The two flagship brands are fairly self-explanatory here.

Kimberly-Clark Corporation (NYSE: KMB) recently traded at $67.23 and its market cap is $26.4 billion.  The stock’s 52-week trading range is $58.52 to $68.91.  The current value is trading at a price-to-book ratio of about 4.8 to 1.  Its forward price earnings multiple is 12.9 and its return on equity is 32.52%.  The consumer products company currently pays a dividend yield of 4.1% to investors.  Thomson Reuters has a consensus price target of $71.15, implying roughly 5% upside to the most recent price. Kimberly-Clark was listed over and over as our consumer products member of the Stocks to Own for the Next Decade.  That has not changed.  With the business of paper towels, tissues, surgical drapes and gowns, and more, it is hard to imagine that a recession is a killer.  We would encourage investors to still look for pullbacks even if this remains our favorite for dividend investors and for other metrics,

Procter & Gamble Company (NYSE: PG) recently traded at $62.91 and its market cap is $2.6 billion.  The stock’s 52-week trading range is $57.56  to $67.17.  The current value is trading at a price-to-book ratio of about 2.6 to 1.  Its forward price earnings multiple is 13.7 and its return on equity is 18.32%.  The consumer products company currently pays a dividend yield of 3.3% to investors.  Thomson Reuters has a consensus price target of $70.10, implying roughly 11.4% upside to the most recent price. P&G has generally been harder for us to love as the DJIA component is a super-cap by market capitalization, but the discount to its 52-week highs currently makes the stock much more attractive than it had been when we usually evaluated the consumer products companies.

Upon starting the “search value” in the defensive consumer products sector, we expected to find little true value for value investors.  It looks and feels like there is a safety premium associated with these names due to the current economic and market trends.  Some investors have to have equity exposure, particularly when the 10-Year Treasury yield s under 2% as of now.

P&G looks interesting on its pullback, but Kimberly-Clark still holds on its shareholder-friendly initiatives.  We also believe that the mega-cap status of P&G just requires too much money to bid shares higher and higher, although that notion is easy to challenge and many investors actually prefer that mega-cap status.

JON C. OGG