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Stock Strategist

Keep These Firms on Your Shopping List

Household-product firms have recovered nicely from past troubles.

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Research has demonstrated that shoppers who use a list while grocery shopping are more likely to have lower grocery bills over time, because having a list reduces the inclination to make spontaneous purchases of less-needed items. Given our preference for buying stocks on sale, however, we're unlikely right now to make any spontaneous purchases of household and personal care (HHPC) stocks. Except for one terrific exception in  Procter & Gamble (PG) (see last month's article, "Why P&G Looks Like a Buy"), we believe most of the consumer-products stocks we cover--including  Alberto-Culver (ACV),  Colgate (CL),  Clorox (CLX),  Kimberly-Clark (KMB),  Energizer (ENR),  Playtex (PYX), and  Newell Rubbermaid (NWL)--are fairly valued. Some of them have been on sale in the past, however, namely Colgate and Kimberly-Clark, and there are some compelling reasons to keep them on your shopping list should they go on sale again. After several challenging years, these companies are fundamentally healthier now, and as providers of staples consumers use every day, they'll be less susceptible to economic fluctuations.

Trouble in the Cupboard
Over the past several years, there's been a fair amount of turmoil for the manufacturers of ho-hum products like detergent, shampoo, batteries, and toothpaste. The biggest impact has been from commodity cost increases, with raw material prices for oil, natural gas, resin, pulp, and zinc rising dramatically and torpedoing profitability. HHPC firms have struggled to find cost savings and push through price increases to keep gross margins from eroding. It's no surprise then that over the past several years these firms have had to take a good hard look at their manufacturing cost structures and restructure their operations in order to find savings to offset these input costs. Whether outsourcing manufacturing to third-party vendors with lower overhead costs, or closing plants in mature markets and building them in lower-cost developing markets that are closer to future growth opportunities, none of the HHPC firms have been immune to some sort of cost-cutting or restructuring, as the examples below illustrate:

Lauren DeSanto does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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