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.
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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.
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.
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