A Board Member Bought Over $200,000 Of Clorox Stock

According to a filing with the SEC, George Harad, a Board member at The Clorox Company (NYSE:CLX), bought 2,000 shares of the stock on December 10^th at an average price of $75.95 per share. In addition, a limited partnership bought 1,000 shares at the same price, and Harad appears to have some degree of indirect control of those shares per the Form 4. So nearly $230,000 was invested in Clorox; Harad had previously only owned 1,000 shares, so this is a large percentage increase in his holdings. Studies show that on average insider purchases are bullish signals (read more about studies on insider trading) and we think that this is because insiders have to be confident in the stock to buy it rather than to diversify- it’s not rational to just buy the stock at random intervals. However, we’d note that a number of insiders have been selling Clorox since the beginning of November (see a history of insider sales at Clorox). Insider selling tends to be a more neutral signal, as it’s a good idea for insiders to diversify, but it’s still something to note.

The Clorox Company is best known for its cleaning supplies, but the $10 billion market cap company also sells consumer products such as Glad trash bags, Kingsford charcoal, and Brita water filters. Sales last quarter- which was the first of the fiscal year ending in June 2013- were up slightly from their levels a year earlier, as were earnings. Clorox had $208 million in cash flow from operations for the quarter, of which $54 million were invested and $84 million paid out as dividends. Thanks to large debt borrowings, some of which was used to pay down  notes, the company’s cash position increased by a net $400 million.

The recent results, and the market capitalization, combine for a trailing P/E multiple of 18, which seems high given that Clorox hasn’t been growing much recently and its product line would normally be considered heavily dependent on staples. This helps make the stock a good defensive pick- the beta is only 0.4, and the dividend yield is above 3% at current prices- but it’s tougher to see a value case. We’ve already covered the fairly high P/E, and the EV/EBITDA multiple of 11.2x is high as well.

Renaissance Technologies, founded by billionaire Jim Simons, increased its holdings of The Clorox Company to a total of about 860,000 shares during the third quarter of 2012 (check out Renaissance’s stock picks). However, a number of notable investors actually exited the long positions they had previously held: our database of 13F filings shows that billionaires George Soros (find Soros’s favorite stocks) and Ken Fisher (see what stocks Fisher likes instead) were among them.