When the larger stock market was hemorrhaging early in the year, there were those among us who thought companies that made necessities might provide a relative safe haven. The logic was essentially that almost no matter how horrible things became, average consumers would still need certain things for themselves or their loved ones. Below I will review how that logic panned out in 2009.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Are Consumer Products A Safe Haven?

When the economy is suffering, most people won't spend money on luxury goods, but they still need to purchase toilet paper, diapers or things of that general nature. Again, that is usually the big allure, and it's a major reason why I was interested in these stocks in early 2009.

Interestingly, the space mounted a comeback from the lows earlier in the year. For example, Texas-based Kimberly Clark (NYSE: KMB), known for its Kleenex and Cottonelle brands among others, saw its stock bounce back from the mid $40s to the mid $60s. Procter & Gamble (NYSE: PG), famous for products like Downy and Dawn, again among others, saw its stock rise sharply from the mid $40s to more than $60. Also, Colgate-Palmolive (NYSE: CL), known for its toothpaste, saw its shares climb from under $60 to more than $80. And finally, Clorox (NYSE: CLX) saw its shares rebound from the $40s to more than $60. Those are sharp advances.

Why These Stocks Rallied
A few reasons explain why these stocks rallied. A flight to safety was one reason. The second was that the entire market rebounded from March on, and sometimes a rising tide lifts all boats. In addition, these consumer companies have kicked out, or are expected to kick out, solid earnings. For example, as of early December Kimberly Clark beat Wall Street expectations for three consecutive quarters, and it's expected to earn $4.59 in 2009 and $5.19 in 2010. That is some strong expected growth. Meanwhile, P&G has also beaten expectations in the last three quarters, and it's expected to earn $4.14 per share this year and $4.06 next year. (For more, see A Guide To Consumer Staples.)

Digging deeper, Colgate Palmolive has beaten expectations four straight quarters, which is an impressive record, and it is expected to earn $4.33 per share in 2009 and $4.89 in 2010. Finally, Clorox has beaten expectations four straight quarters and is expected to earn $4.21 per share this year and $4.66 next year. In short, these earnings and the outlook were another big draw to the space. (For more, see Core Earnings Measure Up.)

The Year To Come
Although the above-mentioned stocks have rebounded strongly and have the potential to be strong in the future, some believe the space may face headwinds in 2010. The thinking: profit taking is a concern, and some shareholders could flee perceived safe-haven stocks if the market continues to rise. My sense, however, is that the group will continue to do well because the macro recovery will be quite an uneven one. In short, this is a sector I'd prefer to be involved in.

Bottom Line
By and large, companies that make and sell consumer products have seen their stocks rebound nicely from the lows earlier in the year, and the big names have done a good job beating expectations over the last several quarters. Moreover, the outlook for the space looks bright from an earnings standpoint. I believe that 2010 will be a very good year for this space.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center