Clorox (NYSE:CLX) is one of several stocks breaking out in light of the coronavirus from China. Shares in hard-hit industries like airlines and retail are trending lower. But household products names like Clorox stock have made new highs.
The reason is obvious: panic buying. And not just food and toilet paper. Cleaning products are another hot commodity. In short, this is a ripe environment for Clorox’s product mix.
Yet, today’s tailwind isn’t the only reason to buy Clorox stock. It’s also a long-term value play. Firstly, it’s a business with a high economic moat. Secondly, the company’s “dull” business model (we’re talking about cleaning products here) is immune to “disruption” and “megatrends.”
Other blue-chip names may falter in a changing economic landscape. But in the case of Clorox, it doesn’t matter if we’re using payment apps for banking. It doesn’t matter if we’re driving electric vehicles. As technology marches on, we’ll still need cleaning products.
Clorox Stock Beyond COVID-19
I don’t have to tell you why the coronavirus (COVID-19) outbreak has been a boon for Clorox shares. With Americans looking to wipe down every surface they touch (including their iPhones), the outbreak has been a substantial demand booster for the company’s cleaning products.
But, as I’ve advised before, keep this pandemic in perspective. Many companies are seeing a boost from this crisis.
What happens when things get back to normal? Short-term demand boosts will revert back to the mean. If anything, people will buy fewer of these products once outbreak-related lockdowns subside. Buying shares in such companies today may not be such a great long-term investment.
Clorox stands to benefit long-term from its coronavirus tailwinds. As I’ve discussed previously, the rush to disinfect has been great for brand awareness. Before the crisis, the company faced lackluster sales growth. The company’s attempts to boost profits by raising prices backfired. Instead, customers flocked to lower-cost alternatives.
Now customers are more concerned with just obtaining household products rather than getting the best deal. If they see Clorox wipes on the shelves, they are picking them up. No matter the price relative to competitors.
You can’t buy that kind of brand awareness. Even when the pandemic subsides, customers may still stick with Clorox, rather than brand switch again.
Immune to Disruption
It’s easy to think of Clorox as just a cleaning products play. But the company is more than just this unit, which makes up only one-third of overall sales.
Clorox owns brands across multiple product categories from laundry products to disinfecting wipes and from kitty litter to charcoal. But what ties these varied products together? Immunity to disruption.
What do I mean? I talk a lot about “megatrends.” These are the large-scale changes that could make or break today’s established blue-chip companies. Some can adapt fairly well. Others? Not so much.
Clorox can largely sit on the sidelines and still prosper. Yes, the company’s products will evolve as innovations emerge. However, in a world of electric vehicles and payment apps, we’ll still need household items.
It’s not a glamorous business. But sometimes “dull” can be lucrative. Immune to disruption, Clorox’s bevy of brands can continue to thrive. With its high-margins, the company could remain a cash cow.
And that’s what makes it a great long-term value play. With a strong economic moat, the company can produce consistent cash flow, driving future upside. Be it via dividends and buybacks, or from smart investments in acquisitions or organic growth, Clorox shares offer great runway.
Clorox Remains a Long-Term Value Play in an Uncertain Market
COVID-19 has been a “black swan” event for us all. But for Clorox, you could call it a windfall. Previously struggling to grow sales, the company now has many of its products flying off shelves. With increased brand awareness, the company could grow its already high market share.
But that’s not all! It’s important to consider how companies prospering during this outbreak will fare once it subsides. In the case of Clorox, it’s a good prognosis. Immune to disruptive “megatrends,” the company will continue to thrive, delivering value for shareholders long-term.
In a sea of uncertainty, Clorox stock offers a compelling value play. Consider it a long-term buy.
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.
