Streetwise

Lauren Rudd

Sunday, March 20, 2011

So What Should You Do?

The world has been assaulted by a series of devastating crises. Heart-rendering turmoil in the Middle East enabled speculators to push the price of crude oil futures well above $100 per barrel. The adoption of severe austerity budgets by several deficit-hampered countries has dramatically increased the level of angst within their populaces. Most recently, the tragic series of earthquakes that battered Japan not only shattered that country’s economy but sent waves of economic uncertainty coursing through the global economy.

So what should you do? The answer is easy; you want to be in a position to take advantage of the bargains created by the subsequent volatility on Wall Street. Sound harsh and unsympathetic? It is not. Maintaining a pragmatic vista with regard to the world’s crises does not imply any lesser degree of sympathy for those imperiled by a tragic series of events. Rather you merely want to avail yourself of the opportunities created by the irrational and uncalled for panic flows of capital.

To do so, you will need to have at hand a researched list of investment candidates, detailing for each a price that in your mind constitutes value. Yet, the recent market volatility has many of you wondering as to the efficacy of investing in stocks at this time. Get over it. Such hesitancy is unwarranted. To put it bluntly, the time to go shopping is when there is a rout of sellers looking for the exits.

Market volatility, combined with a fear of the unknown, readily foments paranoia. While creating profitable opportunities, a panic by others does not negate or relieve you of the responsibility for carrying out the required degree of research and analysis. Successful investing in any market is all about uncovering underpriced fundamental value. Ignore the foreseers of doom, treat fundamental value as a religious doctrine and concentrate your research on companies whose past performance is one of growth and increased earnings.

For example, one candidate that once again merits a closer look is Clorox (CLX), a household name among many families. Almost a century old, the company’s brands include Glad, Hidden Valley, Formula 409, Pine-Sol, and of course their namesake Clorox bleach. Furthermore, Clorox is not just about consumers. Clorox Professional offers up a wide range of industrial products.

More than 80 percent of the company's product line holds either the number one or a strong number two market position. They are found in more than 100 countries with manufacturing plants on five continents. And the company has paid a dividend for 38 consecutive years.

When I last wrote about Clorox a year ago, my earnings estimate for the 2010 fiscal year was $3.72 per share with a 12- month projected share price of $60, for a capital gain of 16.2 percent. In actuality, the company earned $3.69 per share, although the shares recently closed at $67.61.

The recently released fiscal second quarter statement ended December 31, Clorox reported a 3 percent decline in sales and $0.68 of earnings per share from continuing operations. In its guidance going forward, the company continues to anticipate sales growth in the range of flat to one percent for the full fiscal year.

Gross margins will improve modestly. However, taking into account second quarter results and increasing commodity costs, the company now anticipates a full-year gross margin growth of flat to down 50 basis points. (One percentage point equals 100 basis points.) Projected annual earnings are $3.85 to $4.00 per share from continuing operations.