We recently published a list of 7 Consumer Goods and Retail Stocks on Jim Cramer’s Radar. In this article, we are going to take a look at where The Clorox Company (NYSE:CLX) stands against consumer goods and retail stocks on Jim Cramer’s radar.
Jim Cramer, host of Mad Money, recently took a close look at market trends and explained why many stocks are continuing to struggle, specifically in sectors like consumer goods. Cramer pointed out that the ongoing bear market is showing no signs of easing, with stock prices persistently declining day after day.
While Cramer acknowledged that inflation remains a concern, with the Federal Reserve continuing to highlight the issue, he encouraged investors to keep in mind the underperformance of these key sectors.
“This is a market that rewards growth regardless of price. So, people will pay up for tech growth, which is all about real demand and pricing power, and they’re avoiding companies that have lost pricing power and offer yields that are too low to compete with Treasurys. I don’t expect that dynamic to change any time soon.”
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“They spent last year hurting the market and this year already many are in the red. It’s not just a continuation people, it’s actually an acceleration.”
He also highlighted that while tech stocks related to artificial intelligence and advanced computing have helped prop up the market, many other sectors have been facing significant challenges. Cramer singled out industries such as real estate, healthcare, housing, biotech, materials, and food, sectors that underperformed dramatically last year and are showing similar weaknesses this year.
“Bottom line: When you look at these super underperforming stocks, all I can say is, maybe the Fed had better be careful for what it wishes for. Companies that represent a gigantic chunk of the real economy have seen their stocks swoon. Could their earnings be that far behind, and could inflation be running its course a lot faster than expected?”
Our Methodology
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during the episode of Mad Money on January 6. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the third quarter of 2024, which was taken from Insider Monkey’s database of 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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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.
The Clorox Company (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.
Overall, CLX ranks 3rd on our list of consumer goods and retail stocks on Jim Cramer’s radar. While we acknowledge the potential of CLX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
