The Clorox Company (CLX) fell 2% on Monday despite beating top- and bottom-line fiscal fourth quarter 2020 estimates, but shareholders haven't suffered so far in 2020, with the once-sleepy defensive play posting an extraordinary 50% return. Everyone who tried to buy bleach on, Inc. (AMZN) or at their neighborhood market between March and May understands the uptick, with the disinfectant flying off the shelves to protect against COVID-19 on household surfaces.

Key Takeaways

  • Clorox stock has posted a 50% return since the first trading day in January.
  • Technical indicators now favor a reversal and multi-week decline.
  • An effective COVID-19 vaccine could end the uptrend.

Sales have continued at a torrid pace into the third quarter, with folks all over the world stocking up ahead of a fall and winter that could ignite a dreaded "second wave" of the pandemic. Even so, an effective vaccine could end the uptrend in the coming months, making it risky to pick up Clorox shares at these lofty levels, especially with the forward dividend yield shrinking to 1.91%. That's less than most consumer durable plays in this low-yield environment.

Wall Street has grown more cautious about Clorox stock, given the lack of longer-term profit drivers, maintaining a "Hold" rating that is based upon two "Buy," three "Hold," and one "Sell" recommendation. Price targets currently range from a low of $185 to a Street-high $269, while the stock is set to open Tuesday's session about $16 above the median $217 target. Additional gains may be tough with this placement, at least until the outbreak overwhelms health care systems.

A forward dividend yield is an estimation of a year's dividend expressed as a percentage of the current stock price. The year's projected dividend is measured by taking a stock's most recent actual dividend payment and annualizing it. The forward dividend yield is calculated by dividing a year's worth of future dividend payments by a stock's current share price.

Clorox Long-Term Chart (1990 – 2020)

Chart showing the share price performance of The Clorox Company (CLX)

The stock rocketed higher in the 1990s with the fall of communism opening new markets around the world. The rally topped out at $66.47 in 1999, giving way to a selloff that found support in the upper $20s in December 2000. The stock completed a round trip into the prior high in 2005 but failed multiple breakout attempts into 2007 and rolled over, dropping to a five-year low during the 2008 economic collapse.

A 2013 breakout attracted healthy buying interest, lifting the stock into a strong uptrend that stalled above $140 in the summer of 2016. Choppy price action took control into the second quarter of 2018, with investors rotating into growth issues after the President Trump's election. Buyers then returned, carving an advance that stalled at year end.  It finally mounted that level in March 2000, with panicked investors pouring into pandemic plays.

A growth stock is any share in a company that is anticipated to grow at a rate significantly above the average growth for the market. These stocks generally do not pay dividends. This is because the issuers of growth stocks are usually companies that want to reinvest any earnings they accrue in order to accelerate growth in the short term. 

Clorox Short-Term Outlook

The rally stretched outside the top 20-month Bollinger Band® in March and has held above that barrier for the past four months, setting off an extremely overbought technical reading that predicts a pullback lasting several months at a minimum. The long-term stochastic oscillator adds to this cautionary theme, posting the most extreme overbought reading since 2013. Taken together, the reward-to-risk profile has shifted decisively against new long positions, telling shareholders to take defensive measures to protect profits.

The stock carved a volatile ascending triangle into the second quarter and broke out in June, establishing new support between $205 and $215. The inevitable downturn may offer a buying opportunity in this price zone, but a deeper slide is likely, with the psychological $200 level providing a magnetic target. The longer-term technical outlook will remain bullish unless price fails to hold the 20-month exponential moving average (EMA), currently rising in the $170s.

The Bottom Line

Clorox is trading close to an all-time high after a historic uptrend, but the stock is now over-loved and in need of a decline to shake out weak hands.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.