Baffled. That's how I would describe most packaged goods CEOs, analysts and investors. No one can figure out if the incredible numbers they are putting up, like 24% organic growth from Clorox (CLX) Monday, can last, or is it all a function of the pandemic?
Making matters harder is that unlike every major country on earth, with the exception of Mexico and Brazil, we are far from containing the virus. And then, if it isn't difficult enough, let's throw in a recession that has, historically, led to a trade-down but this time doesn't seem to have that same impact, in part because customers are increasingly buying on Amazon (AMZN) , which means going for trusted brands rather than Brand X, which seems the same but who knows.
Let's explore each level of the indecision using the case of Clorox because it is fresh, and because its ongoing CEO, Benno Dorer, has historically been a visionary transformer, quicker to adopt to the internet, more geared than most to ESG and, of course, most important, sells a product that actually kills Covid.
Clorox reported the biggest beat by far in the group. That's the good news. The bad news is that Dorer offered the most conservative outlook imaginable, which left room for a down year. I know a lot of you were confused about how some company could, literally, report a once in a lifetime quarter. Then again, like Ted Williams who hit .400, it was simply not repeatable -- too many things went right -- so it sold off. Remember, it's not a software-as-a-service company with a gigantic total addressable market and fat margins, it's a slow-growing consumer packaged goods affair that hasn't suddenly discovered a cure for cancer or a way to make the data center run cooler and faster than any other.
That's why the analysts were circumspect. They can't afford to recommend a stock with decelerating numbers. They didn't bother to go underneath and ask which categories, which myriad offerings -- bleach, wipes, Hidden Valley Ranch dressing, Glad Scentiva trash bags, probiotics, Burt's Bees and so many others -- might have gone from pandemic necessities that diminish in sales when it is over, to actual secular hygiene and newfound stay-at-home permanently conditions.
Which brings me to the client, you. I think that Clorox was extremely conservative in part because it has a new CEO, Linda Rendle, who shouldn't be saddled by Benno with a high bar if the Moderna (MRNA) vaccine works or the Merck (MRK) antibody succeeds. If you think, as I do, that the pandemic's far from over, you have your best non-tech stock even as there are many others that fit the bill.
Why am I so confident? Because Benno could have easily suspended guidance and have analysts run wild with their imagination, something that can be lethal but us more likely cheery. Now they are forced to take numbers down. At the same time you are going into cold and flu season where wiping off sneezed-on surfaces will be more important than currently. Plus, eating at home with Hidden Valley Ranch and Kingsford simply had to be doing better in the pandemic this quarter and sometimes when expectations are this low, will pay off for you.
We know there are now rebels and critics. I saw a hit job the other day on Colgate-Palmolive (CL) , an improving story that does need a pandemic boost and is getting one. Unlike Clorox it hasn't re-invented itself nearly enough. I wish I were running that company. In the time of Amazon its brands alone can carry it. But it's been ages since Colgate's heyday.
I like Colgate because, unlike Clorox, it's still under-managed. That means you easily could have someone come in to pressure them.
But what's most important to you is that the whole group has run and the guidance from Clorox does show, more than anything, that nobody knows. It may just boil down to this: If you think that the vaccine isn't a panacea and chimerical, Clorox goes much higher. If you think we have this under control, as the president certainly indicates, it's now a sell.
I'm going with my gut, which says this one just got de-risked and it's a buy.