The Only S&P 500 Stock Making a New High
Monday was one of the worst days in stock market history. The Dow plunged over 2,000 points. It seemed like nothing could stop the selling.
The whole world has become afraid of the coronavirus. It’s so serious that Ireland canceled St. Patrick’s Day. There’s even talk of canceling large public gatherings like concerts and sporting events. This could take a hit out of the U.S. economy.
That fear has spilled over into the stock market. The stock selling actually started in the oil market. Let me explain.
The Oil Price Wars
What happened is that Russia and Saudi Arabia started a price war over oil. The Saudis wanted OPEC to cut production, thereby lifting oil prices. The Russians didn’t want to go along, so they walked out of the meeting.
The Saudis were furious, so they struck back and announced a major price cut. The idea was to punish the Russians for breaking ranks.
Oil plunged more than 30% for its biggest loss in 30 years. The stock market opened, and within four minutes, the S&P 500 was down 7%. By New York Stock Exchange rules, that requires all trading to be halted for 15 minutes.
The markets reopened again, and that seemed to calm folks down. But that didn’t last long. The selling returned, and by the afternoon, the index had given back all its gains, and we fell even lower.
By the closing bell, the S&P 500 lost 7.6%. Monday was the seventh-largest one-day loss for the S&P 500 since 1937. (Before 1957, it was the S&P 90.)
The biggest losses were found among many energy stocks. In fact, the S&P 500 Energy Index is basically back where it was 20 years ago. Except for dividends, stock investors haven’t seen any gains from energy. Many energy stocks fell over 20% or 30% on Monday.
I expect to see many major oil companies cut their dividends and pare back on drilling. Unfortunately, I think we’ll see some layoffs as well.
Clorox Rallies in the Face of the Coronavirus
At one point on Monday, 181 stocks in the S&P 500 had made a new 52-week low. Meanwhile, one stock was able to make a new high.
That one stock is Clorox (CLX), and it has emerged as the anti-virus stock. Shares of CLX haven’t merely held up well, but they have actually prospered in the Age of the Coronavirus.
Let’s look at some numbers. From February 19th through March 9th, the S&P 500 dropped nearly 19%. Over that same time period, shares of Clorox gained more than 6%.
There are several reasons to like Clorox right. Obviously, Clorox wipes are going to be very popular as the public gradually gets used to a world of the coronavirus. They’re handy, fairly cheap, and effective.
I also like that Clorox’s business is not cyclical. That means its fortunes aren’t so closely tied to the economy. I think we may see continued weakness in many cyclical industries like housing and energy as the year goes on.
It’s not just recently that Clorox has been doing well. The company nailed its last earnings report in February. Wall Street had been expecting earnings of $1.31 per share. Instead, Clorox earned $1.46 per share. That’s an 11.5% earnings beat.
Chair and CEO Benno Dorer said, “I feel good about the progress we’re making, which is reflected in our second-quarter results, particularly the fifth consecutive quarter of gross margin expansion and sequential improvement in organic sales.” I like that gross margins are improving. That’s often a good sign of a well-run business.
Clorox also raised its full-year guidance. The company’s fiscal year ends at the end of June, so this last earnings report was for their fiscal Q2. For all of 2020, Clorox had been expecting earnings to range between $6.05 and $6.25 per share. Now Clorox expects earnings of $6.10 to $6.25 per share. I wouldn’t be surprised to see that guidance increased soon.
Clorox also pays out a quarterly dividend of $1.06 per share. For the year, that translates to a yield of 2.4%. That’s not bad, especially in an era of low and negative rates. I also like that Clorox has increased its dividend every year for the last 42 years. We can expect to see #43 sometime soon. Clorox usually announces its dividend hike in May. My guess is they’ll raised the quarterly dividend to $1.10 per share.
If you’re looking for a safe, reliable stock in the Age of Coronavirus, Clorox fits the bill.
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