Streetwise

Lauren Rudd

Sunday, May 6, 2012

There Are No Bad Times to Invest - Only Opportunities

Given the many facets of uncertainty facing both the national and global economies, does investing in stocks at this time make sense? According to Bloomberg, April was the first month since January 2008 in which bonds were the only asset class with positive returns, so you might think that the answer is no.

At the risk of incurring the ire and wrath of market timers and self-anointed gurus, there is no bad time to invest. Opportunities to invest in the shares of specific companies are abundant in any economic environment.

However, to seize the moment requires that you do more than just research out possible candidates. It requires a willingness to make decisions with prodigious confidence. Ask yourself if you have what it takes to stay the course despite the consternation of others.

To once again paraphrase a few lines from a favorite poem of mine written by Rudyard Kipling, if you can trust yourself when all men doubt you, if you can wait and not be tired by waiting, or watch the things you gave your life to break, and then stoop and rebuild with worn-out tools. If you can take your winnings, risk them, lose and start again, never breathing a word about your loss...then you'll be a man, my son.

However, do not make your life unnecessarily difficult. Combine value with a sense of confidence and you will become a successful investor. As George Zimmer, founder and CEO of the Men's Wearhouse, is so fond of saying, “I guarantee it.”

A good place to start your selection process is with those not-so-sexy companies that produce mundane products designed for everyday consumption. An excellent example is a longtime favorite of mine, Church & Dwight, best known for its Arm & Hammer baking soda.

When I last wrote about the Company a year ago, my earnings projection for 2011 was 2.19 per share, with a projected 12-month share price of $44 (split adjusted) for an 11.4 percent capital gain. There was also the indicated 1.70 percent dividend yield.

The shares recently closed at $51, so the Company exceeded my estimate with regard to share price performance. Earnings for 2011 came in at $2.22 per share, again exceeding my estimate. Now the question is how will the company do going forward.

On February 1, the Company declared a 41 percent increase in its regular quarterly dividend from $0.17 to $0.24 per share, equivalent to an annual dividend of $0.96. The higher dividend raises the annualized dividend payout from $97 million to $137 million, which represents approximately 40 percent of 2012 projected net income. It is also the Company's 444th regular consecutive quarterly dividend.

The Company's 2012 guidance calls for a minimum of $1.1 billion in free cash flow over the next three years, despite a difficult and challenging economic environment in 2012. Consumer spending and category growth is expected to remain weak due to high unemployment and consumer uncertainty.

Furthermore, commodity prices are expected to continue to increase in 2012 and competition will remain fierce. Nonetheless, Church & Dwight remains well positioned to continue to deliver shareholder value due to its balanced portfolio of value and premium products, aggressive cost cutting and tight management of overhead costs.

The Company is currently forecasting organic sales growth of 3 to 4 percent in 2012 with an increase in gross margin of 25 to 50 basis points (100 basis points equates to a percentage point). Furthermore, the Company continues to expect that its value products, particularly in the laundry category, to benefit from the weak economy and deliver strong organic growth.

As a result earnings per share for 2012 are expected to be in the range of $2.41 to $2.43, which is an increase over the prior year of 14 to 15 percent on a reported basis, and 9 to 10 percent if you exclude the deferred tax valuation allowance charge of $0.09 per share in 2011.