Investing in Clean May Yield More Green

I don’t know about you, but these past few quarters of mucking about at the bottom and dealing with scandals and dirt has made me want to take a nice, hot financial shower. But if we are beginning the initial stages of the bottoming out process, what’s a decent low-risk sector with a reasonable recovery outlook? Personally, I think the first opportunities have to be in companies that sell everyday stuff people need, including products that keep things and people clean.

Laundry. Dishes. Windows. Kitchen countertops. Teeth. Basic stuff like that. Who’s going to save money by serving their family food on dishes that get three or four uses before washing? Weekly showers and clothing changes are unlikely. If that starts happening I’m going to look around for Charleton Heston muttering “damn dirty apes” and wondering if something happened to the Statue of Liberty.

Cleaning is a good sector. Furthermore, there’s even some opportunity to combine the investment opportunity of clean with the conscience-soothing power of environmentally friendly cleaning products.

If you want to find a pure play in green clean, that’s a tough challenge. Most green clean products are produced by privately held companies. Whether these companies will go public eventually or be absorbed by the biggies remains a question. In today’s market, we have a little of both.

To my knowledge, the only publicly traded pure-play in non-toxic cleaning products is Pacific Sands [OTCBB:PFSD]. The company manufactures about 120 SKUs of oxygen-based cleaning and laundry products, it’s line of Natural Choices personal care and cleaning products, and even a line of allergen-free products. Revenues have been growing about 90% year-over year, with an increasing volume going to major retailers who are private-labeling the products. Big-box retailers are selling everything from non-toxic drain cleaners to deck wash made by Pacific Sands. The company also sells branded product through websites.

But you can play the green game with at least a couple of the Big Boys. As a general category, cleaning and personal care products have done reasonably well throughout the recession. Procter & Gamble (NYSE:PG) has gotten beaten up and has fallen to the $60 range after kissing $75 in January 2008. But still, in this mesmerizingly bad market, the stock is about at mid-2007 levels and is relatively stable. The market may correctly perceive that the company’s margins may get squeezed if consumers turn from branded products to generics, but even generics benefit P&G. As to a commitment to the environment: I haven’t seen a specific commitment from the company for a branded line of environmentally friendly cleaning or personal care products.

Clorox Corp. (NYSE:CLX) beat expectations with fiscal first-quarter net earnings of $128 million, or 91 cents diluted earnings per share (EPS). A December 17, 2008 SA blog praised the company’s investment opportunity and fundamentals, so no sense covering that turf again. Trading in the low $50s, Clorox is off its high of $66, but again, unless people stop cleaning things, it’s a good value – perhaps not a screaming buy – with nice upside and the likelihood of a relatively early recovery compared to others.

Church & Dwight Co., Inc. (NYSE:CHD), which manufactures a wide range of cleaning and household products including ARM & HAMMER baking soda. Once again, CHD is down from its two year highs to present an attractive value if you believe in the recovery power of the personal cleanliness segment.

What’s interesting is that these two cleaning products leaders have been growing their “natural” and non-toxic product lines. Clorox recently took a $3 million pretax loss for its acquisition of Burts Bees, a long-time boutique maker of “natural” personal care products. You can bet CLX will put some muscle behind this brand and turn that acquisition accretive ASAP. The company has already had pretty good luck with their year-old line of Green Works natural cleaners, which the company says helped drive fiscal first quarter volumes. It has marketed the heck out of Green Works. It’s certainly a start.

Church & Dwight manufactures consumer products, including the Arm & Hammer baking soda line of products. It now owns the OxiClean line. If you’ve seen the overly loud and bearded Billy Mays hawking his products on cable TV, you might think this is a really happening pop & pop operation, but in fact it’s owned by a good sized conglomerate that brings you products like Pepsodent and Brillo. Still, many of its products are pretty benign and environmentally friendly, unlike Clorox, which sells some pretty toxic items. Little wonder CHD makes a lot of socially responsible investing gold star lists.

Whether it’s your commitment to green, clean or just cleaning up and netting a little green, the cleaning product sector certainly looks more promising than a lot of other retail categories right now.

Disclosure: No positions in companies mentioned.

Comments

[thomas728:]

How do I get a gig like Billy Mays ?

I can be a lot louder,uglier,and will grow the worst
looking beard I have ever seen.

Looks like the boy is gonna pose up for a loggers
contest.........Big Money Billy is more like it !!!!!!!!

Apr 09 11:59 PM