This Stock Should Remain on Your Buy List

What stocks are getting all the credit right now? FAANG, tech and high-growth names are all that seem to get the press. But don’t forget about Clorox (NYSE:CLX). This so-called boring dinosaur keeps grinding higher too, with Clorox stock hitting a new all-time high in the latest trading session on July 9.

The action has been more than impressive. I say that because, of all the FAANG group — companies like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) — or Fastly (NYSE:FSLY) from the tech/high-growth group, Clorox has been one of the most consistent.

These other stocks may boast larger returns overall, but the volatility has been much smoother with Clorox.

While the rest of the market was getting hammered in late-February and through most of March, Clorox was doing just the opposite.

Shares were stable in late-February and exploding higher in mid-March. Admittedly, the parabolic rise in March — with shares surging more than 36% in just a few sessions — was met by sellers. But that didn’t stop the stock from being relatively stable for much of the novel coronavirus selloff.

If Clorox stock was the only name in one’s portfolio — which, for the record is not recommended — then that investor has not only enjoyed nice gains thus far, but did not suffer the wave of anxiety many investors did.

Don’t Give Up on Clorox Stock

For as much as I like Clorox, let’s keep our focus where it needs to be: on the consistency.

This isn’t a flash-in-the-pan biotech stock or a high-octane growth stock. While Covid-19 is helping to accelerate some of its sales, it’s not seeing a huge boon from the pandemic.

Instead, growth estimates are very modest, with consensus estimates calling for approximately 6% revenue growth this year and 9% earnings growth. That’s followed up with forecasts of 2% sales growth next year and 4.1% earnings growth.

The estimates for 2020 are solid, while 2021 are rather modest. If there’s another wave of Covid-19, one could argue that 2021 estimates are conservative. But by and large though, this company is expected to have modest growth because it’s a modest grower. That’s all there is to it.

But in times of extreme uncertainty, stocks with certainty are worth a premium. I’ve been making a similar argument for months now, which is that stocks still forecast to grow in 2020 are now worth a premium vs. the rest of the market. Because of Clorox’s certainty and growth, it’s fetching a premium right now.

Despite the stock’s torrid run — up 47% on the year so far — Clorox stock still pays out a 2% dividend yield. With the 10-year Treasury bond paying a paltry 0.65%, this yield is even more attractive.

Combine that with the company’s steady growth and we have a real winner here.

One Problem With Clorox

Source: Chart courtesy of StockCharts.com

Really, the only problem with the stock has been the recent run. Shares continue to trend well, but a near-50% gain for a steady but slow growth stock is noteworthy.

On virtually every relative valuation metric Clorox has, the stock is extended. Whether that’s the current or forward price-to-earnings ratio vs. its five-year average, its price-to-free-cash-flow measure or its dividend yield being at a 10-year low.

This stock is stretched, but that doesn’t mean it’s done.

Dips to the 10-week moving average continue to be bought. Until that trend breaks, there is nothing that stops this name from going higher. On a dip, watch this key moving average, along with the two-times range extension, which comes into play near $215.

Below puts the 161.8% extension on the table near $195. If shares continue higher, look to see if they can climb toward $250. That’s just under 10% above current levels and puts the 261.8% extension in play near $249.

— Matt McCall

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Source: Investor Place