So far, this week is proving to be a better one to be long the market. Yet not every company is participating in the rally. One of those left behind is the cleaning products specialist Clorox (NYSE:CLX) stock. In especially the first half of March, while its disinfecting wipes were flying off supermarket shelves, investors jumped into CLX stock.
But as profit-taking has hit the Clorox shares in recent days, many investors are now wondering whether the company should be in their portfolios. Although I expect the stock price to be volatile in the coming weeks, long-term investors who would like to collect passive income from dividend stocks may regard any potential weakness as opportunity to buy into company.
Long-Term Tailwinds for Clorox Stock
COVID-19 “safe-haven” stock: Over the past few weeks, the consumer products giant has been in the headlines as so many of us have shopped for daily essentials as well as household cleaning and personal hygiene products, including Clorox’s namesake bleach, disinfectant wipes and cleaning products.
The Environmental Protection Agency (EPA) has recently released a list of products “that meet EPA’s criteria for use against SARS-CoV-2, the novel coronavirus that causes the disease COVID-19.” And many products by Clorox are currently on that list.
Although we all hope that these uncertain days will be behind us in no time, I also believe that most consumers will continue to pay special attention to personal and household hygiene for years to come. And I expect them to regularly use Clorox products to keep their hands and homes clean, which should support the price of CLX stock for the foreseeable future.
Potential recession “safe-haven” stock: Given the current economic uncertainty worldwide, many investors may be looking to diversify their portfolios now. Analysts are debating whether we may already be in a recession. And it is no secret that certain industries usually fare better in times of slower economic growth.
The Street regards consumer staples mostly as defensive businesses. So during a recession it may be quite correct to bet on the consumer. Therefore, Clorox stock may fit the bill well.
In addition to its various cleaning products, the company owns a wide range of brands that are used in millions of households around the world. They include Fresh Step cat litter, Glad trash bags, Hidden Valley dressings, Liquid-Plumr drain cleaner, Neocell dietary supplements and Pine-Sol cleaning products among others. Thus CLX stock may prove to be a defensive name if we find ourselves in a global recession.
Clorox is also cleaning up on social media, according to alternative data provider Thinknum. Chatter about its products on Facebook (NASDAQ:FB) nearly doubled its typical 2020 social media activity in late February and early March as more consumers began to take the threat of the coronavirus outbreak seriously.
What Could Derail CLX Stock Short-Term
Increased volatility and profit-taking: Year-to-date, Clorox stock is up about 9%. On March 18, the shares hit an all-time high of $214.26. Yet in a matter of days, profit-taking has hit the stock price which now hovers around $167.
As headlines around the world regarding the health and economic impact of this pandemic ebb and flow, most names, including CLX stock, will likely continue to choppy.
Although long-term investors would like to see the shares make another attempt at $200, I expect Clorox stock to stay between $150 and $175.
The group is expected to report third-quarter fiscal earnings in early May. If you aren’t yet a shareholder, you may want to analyze the upcoming quarterly results before buying into the CLX share price.
Rich valuation: Understandably, market corrections can feel scary both financially and emotionally. And this viral outbreak still poses health risks to millions of people not only in the U.S. but globally.
It is not an event to be adequately prepared for easily. Stock prices can fluctuate widely at such times. Clorox stock would be an example of such a company whose shares have skyrocketed initially. But now that the initial hype is over, we’re witnessing fundamental factors becoming important once again.
And from a fundamental analysis point of view, CLX stock is not cheap. For example, its forward P/E and P/S are over 25 and 3.5, respectively. Both are quite high numbers for the industry as well as the stock historically. If the company’s Q3 earnings disappoint, then we can expect many short-term traders to hit the “Sell” button fast.
Investor Takeaway
Despite the best efforts of the Fed and other global central banks in cutting interest rates, broader markets appear to believe that a recession is likely in the cards. In such a scenario, we can expect most companies with a consumer focus, such as Clorox, to do better than many others.
However, there will likely be further short-term volatility in CLX stock which I regard as a long-term buy, especially if the price goes toward $150.
Finally, in a low-interest-rate environment, dividend stocks can be one of the best ways to generate a regular passive income for long-term shareholders.
Clorox, which has increased its dividend for decades, has traditionally been regarded as a safe dividend play. Current shareholders would collect a yield of 2.5% on their investment.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
