3. The Clorox Company (NYSE:CLX)
Number of Hedge Fund Holders: 41
During January 6’s episode, Cramer discussed The Clorox Company (NYSE:CLX) and said:
“How about Clorox? It got pummeled. It’s down 3.3% today alone… Alright, so let’s go over the reasons. One, maybe the biggest reasons, someone would say interest rates. When long-term interest rates spike as they’ve been doing ever since the Fed started cutting short rates, these stocks have been hammered. That’s what happens.”
Cramer discussed how dividends, which are typically seen as a protective feature for stocks, can become a weakness when bond yields rise. He explained that as long-term rates increase due to supply, particularly with upcoming bond sales by the Treasury, dividend stocks face increasing pressure. As bond prices decline and yields rise, it creates a challenging environment for dividend stocks, even if the companies themselves are unaffected.
“Odd, which brings me to the second reason this group has just been hammered. The dollar’s gotten too strong. These consumer packaged goods companies tend to be very big overseas. That’s not the case with Clorox, which is largely domestic. But you know how our stock market works. The consumer staples all trade together. If the dollar hurts a big international company like Procter & Gamble as it is, it’s gonna reverberate even into Clorox because they’re all in the same sector, and sector ETFs are like gravity.
… Now then there’s the most insidious problem of all, the one that no one is talking about. Let’s open the discussion, pricing. Now, have you noticed that when you buy consumer products on Amazon, they’re discounting heavily, particularly the stuff you see at a drugstore? Have you seen the pressure being put on companies by Costco where it’s like a different world with those prices? They’re crazy low. I know that Walgreens has tried to keep up offering their own outrageously lower prices on their website…”
Cramer highlighted that as retailers face pressure, their suppliers are also likely to be affected. He suggested that companies that experienced strong price flexibility post-COVID may be losing that advantage, as consumers are no longer willing to tolerate high prices. Cramer pointed out that the market might be signaling a rollback of those prices. He also noted that, despite being considered safe stocks for much of his life, companies like Clorox are no longer viewed as secure investments.
Clorox (NYSE:CLX), a prominent manufacturer and marketer of consumer and professional products, has faced a range of challenges in recent years. The company has struggled with rising inflation and operational disruptions, such as a cyberattack in 2023, which have significantly impacted its performance. The stock is down over 33% below its peak in July 2020.
After the COVID-19 pandemic, sales began to decline, and the company saw its operating margins fall into the single digits. The company took a major step on September 10, 2024, by divesting its Better Health VMS business in its entirety. The divestiture is part of the company’s IGNITE strategy.
Moreover, as reported by TipRanks on January 8, Wells Fargo upgraded Clorox’s (NYSE:CLX) stock from Underweight to Equal Weight, adjusting its price target to $157 from $155. Although the firm notes that the company continues to face challenges in achieving sustainable sales growth, especially as the benefits of easier comparisons have ended and sales growth has turned negative once again, it also recognizes several positive factors, including improved visibility for earnings per share. This, according to Wells Fargo, makes an Underweight rating no longer justified.
