There are plenty of things that we can probably do without. For example, we technically don't need a car or a television set or a fancy wristwatch to get by each day. However, very few consumers would go without toilet paper, soap and toothpaste. This is one of the big reasons why I am a fan of Kimberly-Clark (NYSE:KMB): it sells things that few people will give up, no matter how bad the economic picture becomes. Of course, KMB isn't the only stock that makes these essential items, but there are other reasons that lead me to believe this is a stock to watch.
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Why Kimberly-Clark Is a Keeper
Beyond having well-known brands and shelf space in some of the nation's largest retailers, Kimberly-Clark has also been generating solid profits for its investors. In fact, it has slightly beaten estimates in the last two quarters straight, and has beaten estimates in three of the last four quarters. That is a solid record and is probably a major reason why the shares have bounced so sharply off their lows and are now trading near 52-week highs. If this stock is able to make a new high, this is likely to place it on the radar screens of some retail and institutional players, particularly those that like to track and invest in companies that have momentum in their favor.
I think it's also worth noting that Kimberly-Clark is an overall solid deal from a price-to-expected earnings standpoint. As I write this, the company trades at 14 times this year's estimate, which is $4.23, and at about 12 times the 2010 estimate (currently $4.94). That sure seems good given the more than 16% growth that's expected from this year to next year ($4.23 to $4.94). (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
Kimberly-Clark is expected to release its third quarter numbers on October 22. Analysts are expecting it to earn $1.14 per share. I think it could beat that estimate, and if I'm right I think it may not be too long until the company hits a new annual high.
Other Consumer Product Companies That Can't Be Passed Up
Procter & Gamble (NYSE:PG) is another company that I continue to like for some of the same big-picture reasons. The company has done a good job beating expectations in recent quarters. It also trades at a reasonable 15 times this year's estimate, and is expected to grow its bottom line by a double digit percentage from this year to next year. Also Johnson & Johnson (NYSE:JNJ), which is known for its Band-Aid line and its kids shampoo, trades at 13 times this year's estimate and is expected to grow at a 7.4% rate from 2009 to 2010. (See our Financial Ratios Tutorial to learn about the numerous other valuation metrics you can use in your analysis.)
Finally, although Clorox (NYSE:CL) clearly doesn't specialize in the same kind of personal care products, it does offer well-known cleaning products that many consider to be essentials. It trades at about 14 times this year's estimate, and I think there could be another $10 in upside from current levels.
Bottom Line
As you can see, I'm taken in by consumer products companies, and among my favorites right now is Kimberly-Clark because it's cheap from a price-to-expected earnings perspective. I also think it could beat estimates in its soon-to-be-announced quarter, which if I'm right could cause it to hit a new high.
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