Buy Consumer Goods Stocks When They’re Out of Favor

Price is what you pay, value is what you get. For some companies, it’s hard to get an exceptional value. Consumer goods companies, which tend to have solid profit margins thanks to brand loyalties, tend to be expensive to buy into, although they may be worth it over time.

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  • With inflation fears picking off individual stocks right now, however, a few buying opportunities in this space are emerging with an eye for a rebound in the months ahead.

    For instance, Clorox (CLX) just saw its largest one-day drop in more than 20 years. The maker of bleach products, among other things, was a popular buy at the start of the pandemic. But the company only earned $1.36 per share in its latest earnings, far under expectations for $1.92.

    The company blamed its big loss on higher commodity costs, citing inflation, as well as other rising costs in general. That’s in line with what many other companies have reported, but inflation fears may likely peak in the months ahead.

    The near-10-percent drop in shares on Tuesday put shares at around 24 times earnings, well down from over 30 times just over a year ago. Shares are now down 23 percent over the past year.

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  • Action to take: This qualifies as a stock to buy, given the company’s history of dividend growth. Investors today can get a starting yield near 2.6 percent, with room for that to grow over time.

    For traders betting on a rebound, the January $175 calls, last going for about $5.90, could easily jump by high-double to low-triple digit returns should shares recover in the months ahead.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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