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Colgate or Clorox: Which Consumer Staples Stock to Bet On?

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One of the primary tools for becoming a successful investor is to have a diversified portfolio. A variety of stocks not only minimizes risk, but also gives an investor the chance to enjoy optimum returns. Hence, it would be prudent for any investor to identify the promising stocks and invest in them at the opportune moment.

Now it is certainly difficult to grope for the safe zone amid the market volatility. However, among all sectors, we suggest taking a look at the consumer staples sector, as it is believed to be a good choice for investors looking for steady growth, low volatility and decent dividends. Notably, this sector that includes necessities like food, beverages and household goods among other products, has outperformed nearly all other sectors for over half a century.

Another factor which sets consumer staples apart is that the demand for its goods is usually consistent, regardless of economic conditions. This low volatility has also enabled the sector to keep going even in recessionary periods, as these stocks fall far less than other sector stocks in a bear market. So, if these stocks can keep one afloat in low tides, wonder what they can do in the current market situation – where the U.S. economy is witnessing a gradual recovery, highlighted by favorable jobs data, enhanced consumer spending and improved gross domestic product (GDP).

That said, we turn to two stocks that are in a head-to-head battle in the soaps and cleaning preparations industry, which forms part of the consumer staples sector − The Clorox Company (CLX - Free Report) and Colgate-Palmolive Co. (CL - Free Report) . Given their strong fundamentals, impressive earnings history and decent stock performance, it is difficult to say which is a better consumer staples stock. Let’s get our hands on these stocks and analyze their different aspects to judge which is a better pick.

Clorox vs. Colgate

Starting with their stock price movement, we note that Clorox has seen its shares jump 19.5% over the past one year, while Colgate’s 20.3% upside remains noteworthy too. Both stocks have improved on a year-to-date basis as well, gaining from their solid fundamentals and quarterly performances.

Fundamentals & Growth Strategies

Clorox is engaged in the production, marketing and sale of cleaning, household, food and other personal care products in the U.S. and international markets. The company manufactures products in over 24 countries and markets them in more than 100 countries, highlighting its strong geographic reach. On the flip side, Colgate is not any less, as this global consumer products manufacturer with a distribution network spanning across more than 200 countries, is the world leader in oral care products, alongside being one of the leading manufacturers of personal care products.

On the one hand, Clorox's diversified brand portfolio positions the company well above its peers to generate above-average industry growth and sustain itself in the currently challenging environment. On the other hand, Colgate’s continued focus on product innovations, globally recognized brands and broad international presence in both developed and emerging markets facilitates the company to take advantage of growth opportunities, thereby enhancing profitability. Well, it seems that both these stocks are fighting exactly even in the consumer goods space.

Taking a look at their growth plans, both companies are well on track with their robust strategies. Evidently, Clorox remains keen on the smooth execution of its 2020 Strategy, which is aimed at boosting growth for the improvement of categories and overall market share. This is meant to be achieved through investment in brands, development of eCommerce, technological advancements, and focus on the 3Ds – desire, decision and delight.

Colgate, too, is leaving no stone unturned in this regard as it continues to progress well with its savings programs, as both, its Global Growth and Efficiency Program or 2012 Restructuring Program and its Funding the Growth undertakings are delivering impressive results. These programs are aimed at reducing structural costs, standardizing processes, opening new distribution centers, improving decision making, enhancing market share and thereby, contribute significantly toward the improvement of gross and operating margins over the long term.

Also, both companies are known for their disciplined capital allocation, given their constant shareholder-friendly moves in the form of making dividend payments and share buybacks. Notably, Clorox has an annual dividend yield of 2.5%, compared with Colgate’s 2.1%. So, as of now Clorox and Colgate seem to be on par with each other.

Earnings Surprise History & Estimates

Though Clorox’s earnings missed estimates in the last reported quarter owing to currency woes, macroeconomic hurdles and higher promotional costs, the company had outperformed the Zacks Consensus Estimate for four straight quarters prior to that. In fact, the company has also witnessed upward revisions in its earnings estimates for fiscal 2017 over the past 30 days, as management issued a favorable outlook for the fiscal year, highlighting confidence in its core business strategies. 

CLOROX CO Price and Consensus

 

CLOROX CO Price and Consensus | CLOROX CO Quote

Now looking at Colgate, this stock has only met or topped earnings estimates in the trailing four quarters. In second-quarter 2016, the company’s earnings surpassed estimates despite the prevalence of strong currency headwinds, deconsolidation of Venezuelan operations and other tough economic conditions. Though the company expects the currency fluctuations and macroeconomic headwinds to linger throughout 2016, it still anticipates another year of robust organic sales growth on the back of new products across categories and geographical regions. This encouraged management to retain its 2016 outlook. Consequently, the Zacks Consensus Estimate for 2016 has been trending upward, since the earnings release.

 

COLGATE PALMOLI Price and Consensus

 

COLGATE PALMOLI Price and Consensus | COLGATE PALMOLI Quote

Comparing their long-term growth rates, Clorox stands to have a long-term earnings growth rate of 7.6%, which is a little below Colgate’s 7.8%. However, Clorox’s VGM style score of ‘B’ fares better than Colgate’s VGM style score of ‘D’. Hence, still too close to call.

Final Take

We believe that it remains to be seen which stock is better, as both Colgate and Clorox hold promise for the long run. A final look at their Zacks Rank reveals that both these stocks carry a Zacks Rank #2 (Buy), thus pronouncing our message loud and clear.

Investors can also count on stocks like Ingredion Incorporated (INGR - Free Report) and Omega Protein Corporation , both of which sport a Zacks Rank #1 (Strong Buy) and should satiate their appetite further. 

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