A Board Member Bought Over $200,000 Of Clorox Stock
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According to a filing with the SEC, George Harad, a Board member at The Clorox Company (NYSE: CLX), bought 2,000 shares of the stock on December 10 at an average price of $75.95 per share. In addition, a limited partnership bought 1,000 shares at the same price, and Harad appears to have some degree of indirect control of those shares per the Form 4. So nearly $230,000 was invested in Clorox; Harad had previously only owned 1,000 shares, so this is a large percentage increase in his holdings. Studies show that on average insider purchases are bullish signals and we think that this is because insiders have to be confident in the stock to buy it rather than to diversify- it’s not rational to just buy the stock at random intervals. However, we’d note that a number of insiders have been selling Clorox since the beginning of November. Insider selling tends to be a more neutral signal, as it’s a good idea for insiders to diversify, but it’s still something to note.
The Clorox Company is best known for its cleaning supplies, but the $10 billion market cap company also sells consumer products such as Glad trash bags, Kingsford charcoal, and Brita water filters. Sales last quarter- which was the first of the fiscal year ending in June 2013- were up slightly from their levels a year earlier, as were earnings. Clorox had $208 million in cash flow from operations for the quarter, of which $54 million were invested and $84 million paid out as dividends. Thanks to large debt borrowings, some of which was used to pay down notes, the company’s cash position increased by a net $400 million.
The recent results, and the market capitalization, combine for a trailing P/E multiple of 18, which seems high given that Clorox hasn’t been growing much recently and its product line would normally be considered heavily dependent on staples. This helps make the stock a good defensive pick- the beta is only 0.4, and the dividend yield is above 3% at current prices- but it’s tougher to see a value case. We’ve already covered the fairly high P/E, and the EV/EBITDA multiple of 11.2x is high as well.
Renaissance Technologies, founded by billionaire Jim Simons, increased its holdings of The Clorox Company to a total of about 860,000 shares during the third quarter of 2012 (check out Renaissance's stock picks). However, a number of notable investors actually exited the long positions they had previously held: our database of 13F filings shows that billionaires George Soros (find Soros's favorite stocks) and Ken Fisher (see what stocks Fisher likes instead) were among them.
The two closest peers for Clorox are Colgate-Palmolive (NYSE: CL) and The Procter & Gamble (NYSE: PG). These companies have significantly larger market caps than Clorox, but are actually priced at a small premium as their trailing P/Es are in the 20-21 range. They can’t boast much of an increase in earnings either; in fact, Procter & Gamble saw revenue fall 4% and net income drop 7% in its most recent quarter compared to the same period in the previous fiscal year. Procter & Gamble is known to be a favorite of billionaire Bill Ackman’s Pershing Square. Of course, these stocks also have low betas, and dividend yields that are in the same range as Clorox’s, but it’s similarly difficult to see them as good values.
We can also compare Clorox to housewares companies Newell Rubbermaid (NYSE: NWL) and Jarden (NYSE: JAH). These stocks also look expensive on a trailing basis, but Wall Street analysts expect strong earnings growth next year in both cases: their forward P/Es are 12 and 11, respectively, versus Clorox’s 16. However, we’re not sure that we would depend on those forecasts as each company reported lower sales last quarter than a year earlier.
There don’t seem to be any good values in personal products or housewares, at least among the large and mid caps we’ve considered here. Clorox and its peers have moderately high multiples, with no sign of the growth rates that we’d consider necessary to justify those valuations.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of The Clorox Company. Motley Fool newsletter services recommend The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!