Locked Down And 'Knocked Up': The Case For Kimberly-Clark And Procter & Gamble
Summary
- Coronavirus is shutting people in.
- A coming baby boom?
- Kimberly Clark makes diapers.
- Proctor and Gamble makes baby products.
- Looking forward to the future.
- Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »
In 1634, John Milton wrote, "Was I deceived, or did a sable cloud turn forth her silver lining on the night?" The poem was Comus: A Mask Presented at Ludlow Castle. A dark cloud descended on the world in the form of a faceless enemy, a virus with no treatment or vaccine. The Coronavirus originated in China and spread like wildfire across the globe to become a global pandemic.
The outbreak began either in late 2019 or early 2020. It likely came from the "wet markets" in the world's most populous nation. African Swine Fever killed millions of pigs in China in 2019 and caused an increase in the consumption of other forms of animal proteins. Many scientists believe that the virus came from a bat or other animal and mutated into a highly contagious invisible bug. The number of infections, and sadly deaths, continues to rise with Italy overtaking China with the highest number of fatalities. The virus is now in the US, disrupting and threatening life and causing unprecedented destruction to the US and global financial systems. It is a scary time, and we all need to search for that silver lining in the current dark cloud.
It will take years to dig out of the financial mess created by Coronavirus once science removes the threat. Meanwhile, one positive aspect could be the creation of new life at a time when a growing number of people are losing their lives to the worst pandemic since 1918.
Coronavirus is shutting people in
As of last weekend, around one-quarter of Americans were locked down in their homes, with people all over the world facing the same situation as Coronavirus is spreading from country to country and city to city. On Saturday, March 21, the virus claimed almost 800 innocent lives in Italy. The number of cases rose to over 300,000 and is growing. Central banks are flooding the markets with unprecedented amounts of liquidity in an attempt to stabilize markets. Governments are working on bailout packages and aid for companies and individuals impacted by the virus, which is all of us. The unemployment rate will skyrocket, and the stock market has gone from bull to bear in one short month. In markets, a deflationary spiral will cause debt-laden companies in a broad range of industries to turn to governments for bailouts. The primary concern is the health and wellbeing of people all over the world in the worst pandemic since the 1918 Spanish flu that killed over fifty million people. When scientists develop a vaccine and treatments, and they will, it will be time to pick up the economic pieces that are likely to be one of the most significant financial messes of all-time. The problem is that science moves slowly, and markets move in the blink of an eye. By the time the dust settles, and the world begins to pick up the financial pieces, the US deficit could rise to $30, $40, $50 trillion, or more, depending on how long the halt in economic activity continues.
With mounting infections and fatalities each day, most people are worried and are following instructions from the government to remain at home. The sports seasons are gone, limiting entertainment to movies, TV shows, and series. Some people will take up hobbies, while others will look for comfort in the arms of a significant other during this scary time.
A coming baby boom?
The baby boom in the United States began in 1946 and lasted until 1964. The increase in the birth rate came at the end of World War II as soldiers returned from the battlefield back into the arms of loved ones. Many people held off having children because of the Great Depression and the war. In the aftermath, the government, through veteran benefits, allowed people to afford homes in the suburbs that led to raising families outside of cities.
The US government policies played a significant role in the 1946-1964 baby boom, and that could be happening again in 2020. Whether they call it a "pause" or "shelter in place" or any other euphemism, it is all the same, we have been locked in our homes with our families. Initially, it is a thirty-day lockdown, but it can, and is likely to last a lot longer for many. Fear and uncertainty make individuals seek comfort. For many couples sharing all their time every day, a combination of anxiety and boredom will invariably lead to activities that relieve the pressures of life, at least for a little while. The current environment could lead to lots of sex.
It is now mid-March 2020; my guess is that by New Year's Eve 2020, the birth rate will begin to accelerate. The longer the lockdown goes on, the more babies we will welcome into the world over the coming months, and perhaps years. Corona babies are the silver lining in the very dark cloud hanging over the world these days.
As the markets melt, many of us are struggling to rearrange our nest eggs. Coronavirus will end, but it will change the world and investment landscape. The bear market in stocks is likely to continue. We must look for companies that will survive and thrive in what will be a new investment reality.
Kimberly Clark makes diapers
Kimberly-Clark (NYSE:KMB) and its subsidiaries manufacture and market personal care, consumer tissue, and professional products around the globe.
Source: Barchart
As the chart shows, KMB shares fell from an all-time peak of $149.23 in January 2020 to $116.44 per share on March 23 or 22%. The company had a market cap of $39.766 billion, trades an average of over two million shares each day, and was paying shareholders a 3.7% dividend at $116.44 per share.
Source: Yahoo Finance
The company has consistently beaten EPS estimates over the past four quarters. Kimberly-Clark makes many of the products that will continue to be in high demand even after the global pandemic ends. Meanwhile, according to KMB's company profile:
The Personal Care segment offers disposable diapers, training and youth pants, swim pants, baby wipes, feminine and incontinence care products, and other related products under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Kotex, U by Kotex, Intimus, Depend, Plenitud, Poise, and other brand names.
Source: Yahoo Finance
Proctor and Gamble makes baby products
Procter & Gamble (PG) manufactures and delivers consumer packaged goods to consumers in the United States and around the world. The company operates in five segments, Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
Source: Barchart
Procter & Gamble shares reached its record high of $128.09 in February 2020 and moved to $99.24 on March 23, a decline of 22.5%.
Source: Yahoo Finance
PG also has beaten consensus EPS forecasts consistently. PG had a market cap of $244.253 billion at a share price of just below $100 per share. The company trades an average of over nine million shares each day and was paying shareholders a dividend of 3.0% at that level.
According to KMB's company profile:
The Baby, Feminine & Family Care segment baby wipes, taped diapers, and pants; adult incontinence and feminine care products; and paper towels, tissues, and toilet papers under the Luvs, Pampers Always, Always Discreet, Tampax Bounty, Charmin, and Puffs brands.
Source: Yahoo Finance
Looking forward to the future
As of March 23, the S&P 500 index fell by around 34% since the February all-time high. KMB shares were down 22%, and PG stock fell 22.5% from their respective all-time highs. Both stocks outperformed the overall market during the period of unprecedented risk-off price action.
Lockdowns in many states and around the world could yield a bonus for the companies in nine months. As couples shelter in place, the birth rate could suddenly spike, causing additional demand for Kimberly-Clark and Procter & Gamble products. My wife and I have three sons locked down with their significant others across the United States. The memory of this dark cloud will be a silver lining if it produces one or more of the grandchildren we have been awaiting. For us, we are hopeful that locked down equals knocked up. Meanwhile, Kimberly-Clarke and Procter & Gamble could also be a silver lining for portfolios if government policies ignite another baby boom.
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