The rapid rise and fall of Clorox (NYSE:CLX) stock in just one week is a reminder for investors not to chase hype. The stock peaked at over $210, only to fall sharply. Worse, still for those who bought the stock at the top is that Clorox offers no value at current levels. Unless the COVID-19 lockdown gets extended for longer, which I hope is not the case, investors should sell Clorox shares.
The market scurried for the next biggest revenue winner as COVID-19 infections climbed globally. Italy and Spain are the worst-hit zones. And the virus spread is moving westward past the United Kingdom and to the United States. That is why Clorox stock became everyone’s favorite stock on March 17. The notion that cleaning product sales will rise after the height of the outbreak ends in 3-4 weeks is flawed. Consumers are stock-piling bleach this quarter, but it will do little to lift Clorox’s overall results. On the conference call, the company said:
We’re getting ready to be able to supply our customers and also our healthcare institutional customers with products, should they need that to help consumers combat the virus. So these are three pretty important swing items that could lead us to the lower or higher end.
But all in all, we feel like the midpoint of the range would point to a 3% sales growth in the back half on average.
Source: Seeking Alpha
Demand will normalize in the long term, so stockpiling of cleaning products will follow with a plunge in sales in the future.
Below, Clorox stock plunged but maintained an uptrend that began in Dec. 2019:
The various lockdowns and the sharp drop in overall global productivity will hurt Clorox’s business. Still, in the near term, increasing consumer traffic to Walmart (WMT) and Home Depot (HD), for example, will give the quarter a boost. And in the months ahead, when workplaces open again, demand for disinfecting wipes will increase permanently. These wipes kill germs and viruses. Workers will conscientiously keep the workspace clean.
Alternative Investment: 3M
Oddly enough, markets do not recognize the importance of China slowly resuming business. 3M’s automotive opportunities will improve as things return to normal. Mike Roman, the company’s CEO, said that “automotive opportunities in electronics were expected to have a softer year, but we saw electronics in China improving.” He also said that COVID-19 will not significantly have an impact on full-year expectations.
Given that 3M’s performance depends on China’s recovery and consumer demand rebounding, investors should consider accumulating the stock.
Fair Value on Clorox Stock
According to Stock Rover, Clorox is worth $228.11. Despite the average value score, Clorox demonstrated decent growth and is a high-quality score. The recent stock spike sent its sentiment score to 99.
Clorox is willing to aggressively increase its advertising spend to beat its competition. But, for now, the company will keep its overall spending on advertising and sales promotion steady. Product innovations introduced in the second half of this year should improve its margins. On the operating side, the company has two large cost savings projects to lower costs. Its bleach compaction and new litter facility will lead to 100% recyclable, reusable or compostable packaging.
Investors should not get caught up in the hype of consumer products benefiting from a short-term increase in demand. As countries successfully combat the spread of COVID-19, demand for cleaning products and disinfectants will return to normal levels. Buying stocks on expectations the spike in demand will last forever will lead to losses.
This author does not completely avoid stocks somewhat in the hyped category. Investor money flow in COVID-19 vaccine suppliers lifted Moderna (NASDAQ:MRNA) shares. This stock risks falling, too, if investors sell. But since this stock is a DIY top idea before the main street noticed it, the stock will reward investors who bought the stock earlier.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.