The Consumer Staples SPDR ETF (NYSEARCA:XLP) is up 4.435 year-to-date. That’s not too shabby for a low beta offering with a decent dividend yield of 2.69%. But investors looking for real strength in this sector ought to consider household stocks.
While some once beloved staples names dither and disappoint, household stocks are among the more conventional names getting big boosts from the novel coronavirus pandemic. Household stocks aren’t nearly as glamorous as e-commerce, fintech or vaccine equities – all of which are being bid higher amid the pandemic.
However, sales of not-so-glamorous household items are soaring owing to Covid-19. As just one example, the global hand sanitizer market is forecast to grow to $7.32 billion by 2027 as families take steps against viral infections.
With that in mind, here are a few household stocks to consider.
Household Stocks: Clorox (CLX)
Clorox is the epitome of a once boring household stock built for the pandemic climate. A year-to-date gain of 41.42% proves as much as does a shortage of disinfecting wipes that’s expected to last until next year.
The rub with CLX stock is that its pandemic leverage cuts both ways. It spiked in March amid the first wave of coronavirus cases only to be sold off as investors embraced riskier fare, such as airlines and casino equities. Clorox soon resumed its rally only to endure an April retrenchment as the U.S. economy reopened. A longer rally subsequently occurred after it was clear the virus was far from defeated, underscoring the name’s correlations to virus news.
Last week, Clorox dipped 4%, extending its one-month loss to 6%. That retreat could be the result of Covid-19 fatalities declining in some states or expectations that a vaccine could emerge by early 2021.
Recent price action in the stock seemingly reflects expectations that sales are going to decline once the virus is vanquished. But that’s a tricky bet to make because there’s no firm timeline for when that’s going to happen. Additionally, health and wellness products account for 40% of Clorox sales. If the company believed demand was going to rapidly erode, it wouldn’t be working so aggressively to bolster output.
Up nearly 14% year-to-date, Kimberly-Clark is another household stock getting a lift, though more modest, from the pandemic. Still, this consumer products giant is relevant.
It’s the maker of Cottonelle toilet paper and Viva paper towels, among other brands of those products. Those goods became gold, flying off store shelves during the first wave of the pandemic. Kimberley-Clark’s household leverage is vital because the company depends on professional sales (office buildings and the like) revenue and that division is languishing amid the work from home trend.
A near-term challenge for Kimberley-Clark is waiting on consumers to work through stockpiles of goods built up earlier this year. But if it is able to reach a cost savings target of $500 million by 2021, that could compel investors to stick around for dividend growth and other quality traits. The company’s return on invested capital averaging 23% annually for half a decade.
Longer-term drivers include a rebound in the professional services category and an aging population that should boost sales of the company’s adult-related products. Kimberley-Clark also holds enviable market share in some ex-U.S. regions, including Latin America.
Church & Dwight (CHD)
Church & Dwight, the maker of Arm & Hammer brands, is one of this year’s more exciting household stocks as it’s higher by 35%. The company isn’t the disinfecting giant that Clorox is. But Church & Dwight does make an array of bathroom and floor cleaning products, both of which are increasingly relevant as consumers seek to make their homes anti-virus fortresses.
Data confirm CHD stock’s leverage to Covid-19 as second-quarter sales jumped 8.4% on an organic basis. The company forecast a 2020 organic sales increase of 7% to 8% and earnings per share of $2.79. Not only does that make Church & Dwight one of a small number of companies offering up full-year guidance in 2020, those projections topped Wall Street forecasts.
Over its history, Church & Dwight is proficient at finding accretive deals and the company could resume shopping for targets as the economy normalizes.
“Over time, acquisitions have shifted its profile such that nearly 50% of consolidated sales result from acquired personal-care fare like Orajel and Trojan, which tend to have more robust margins than its legacy household offerings,” according to Morningstar. “Further, Church has diversified the mix of value and premium products, positioning itself well for the looming economic downturn.”
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.