Investors Want Profits, Dividends and Safety

 | Apr 23, 2013 | 12:13 PM EDT
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The fixation on sales growth has led to some of the dumbest investment decisions I can ever recall. Take Kimberly-Clark (KMB), which I will have on "Mad Money" tonight. You might wonder how a stock that makes Kleenex can run like this one has. How could this plain-vanilla company rally 25% this year alone, giving you a double in four years, not including the hefty dividend?

Simple: Kimberly-Clark gives you everything you want in a stock except revenue growth, which was up only 1% year over year. Kimberly gives you sleep-at-night earnings per share, a terrific buyback and one of the best dividends, with excellent growth to that dividend. Kimberly fulfills the social compact that we want from management: a commitment to drive the stock higher through performance, leaving tough markets where there's no growth or where there is cutthroat competition, like the diaper business in Central and Western Europe. It is expanding nicely in fast-growing emerging markets, particularly China, Russia, South Korea, Vietnam and Mexico. Its brands seem to resonate everywhere.

Finally, it offered guidance of a 7% to 10% increase in earnings per share over last year, and $5.50 goes to $5.65, to $5.60, to $5.75 -- just the kind of upward earnings guidance that's needed to continue to propel the stock, despite an increase in raw costs, although not one that's too debilitating.

What did Kimberly Clarke not give you? What many of the neutral to negative analysts are demanding, namely sales growth, as 1% is nothing to write home about, even as organic growth amounted to 3%.

Put simply, the analysts have it wrong. They know what they want, but they do not know what the worldwide investor wants. They are confused. Goldman Sachs, for instance, which has a Sell rating on Kimberly, one that encompassed half of 2011 and all of 2012, when Goldman had an analyst change who took it to a Hold, then back to a Sell. This kind of thinking is endemic on Wall Street, where the mantra is sales growth. It is not endemic among the buyers, where the mantra is dividend growth and safety.

Now, one day things might change, and investors might revert to paying up for technology, but right now, revenue growth is stunted because of personal computer sales. Maybe they will want to pay up for industrials and thrill in the prospect of a stock guiding down revenues and yet still enjoying a bounce as Caterpillar (CAT) is. Perhaps they will see the value in banks, not just insurance companies, and recognize that when we get higher interest rates, we might get higher bank earnings that are sustainable.

But what I think they want is simple: They want the first national bank of Kimberly-Clark, which has failed to disappoint on the line that matters: the profits line. The revenue line? It's just not that much of interest right now. Too many revenue misses away. Too much expected lack of revenue growth for these companies showing that, alas, it just doesn't matter, and it is not the focus, no matter what the analysts and their journalistic minions demand and insist on shining the light on. They just don't get it. Only the investors do.

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