Clorox (NYSE:CLX) has been one of the few bright spots on Wall Street over the past few weeks. As the wider market crashed to new lows, Clorox stock shot up more than 20%.
But Clorox is more than just a coronavirus stock — the firm also makes for a solid long-term value play.
The impact from coronavirus on public behaviors will likely last long after the virus has been forgotten, a positive for Clorox stock holders.
Plus, the sudden rise in demand for Clorox products should help the firm rebound from last year’s price hikes, which hurt sales growth in the first and second quarters.
Clorox Stock: Disinfecting to Become a Way of Life
During an epidemic like this one, a few rising stars typically emerge from a down market. During the 2016-17 Zika virus scare, insect repellent flew off the shelves. That rush to stock-up on bug spray helped boost shares of Spectrum Brands by nearly 50%.
But as worries about Zika faded by the start of 2018, Spectrum gave up all of those gains and more in the years that followed. That’s because once Zika was contained, consumers no longer worried about maintaining fully-stocked insect repellent supplies.
Back in January, you might have made a comparison between Spectrum and Clorox. After all, they’re both panic buys that emerged in the throes of a global panic. But now that lawmakers around the world have warned that the virus will continue to be a threat through the summer, the longer-term case for Clorox looks much stronger.
There are a few reasons for that— the first is purely financial. Last year, the firm raised its prices and saw a poor reception from consumers. The result was lackluster sales growth in the first quarter and Q2 as rivals offered lower-price options. To combat that, Clorox had been preparing to hit back with a series of promotions and marketing efforts designed to increase demand.
Coronavirus has eased that burden somewhat, as customers tend to be less cautious about pricing differences in times of crisis. The surge in demand regardless of higher prices means Clorox won’t have to spend aggressively to boost sales as it had been planning.
Not only will that make Clorox’s margins more appealing, but it will give the firm a chance to recapture some of its former customers without spending big. If Clorox can build strong reputation during this period of uncertainty, the firm may be able to hang on to its premium pricing once the dust settles.
The New Normal
The other reason Clorox stock is more than just a coronavirus play is the the shifting attitude among the general public. A focus on hygiene and sanitary behavior has dominated everyday life — and the longer the Covid-19 scare continues, the more ingrained into consumers it will become.
Wearing a mask, for example, isn’t a behavior that will likely continue once the threat of coronavirus has lifted. That’s because it’s uncomfortable and there’s not much of a reward when there’s no virus. However, disinfecting household surfaces and having wipes on hand to clean public handles and eating surfaces is a behavior that could stick if it goes on long enough.
Research from the University College London shows that it takes roughly 66 days to form a new habit. If that habit is ‘easy’ enough, the time it takes to stick is even shorter. That will work in Clorox’s advantage as consumers around the world work to disinfect everything around them to protect against coronavirus.
Disinfectant products make up roughly 25% of Clorox’s sales— so even a short term boost in sales would be beneficial to Clorox stock. A long-term rise in usage of disinfecting wipes would be even more positive.
The Bottom Line on Clorox Stock
Clorox’s rise over the past few weeks due to increased demand might make the stock seem expensive, but the long-term case for Clorox stock means it’s worth building a position in now.
As coronavirus continues to spread, the demand for Clorox products will rise. The firm is working to ramp up production to meet that demand, which suggests that the coming quarters will see its disinfectant products make up an even greater proportion of overall sales. But what’s most important is the fact that when all’s said and one with coronavirus, the disinfecting behavior the public has adopted will probably stick around.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.