Core Concepts: Sleepers in Household Products

Generally, this sector doesn't offer much in the way of opportunity for bargain-hunters. The businesses are just too stable. To take advantage of investors' linear bias, we need companies that are inconsistent. In other words, we need them to cycle through intermittent periods of abundance and struggle.

The operating consistency of companies in this sector is evident in their stock prices. Last year, for example, the stock of Clorox traded in a narrow range, between $56 and $66 per share. The stock of Kimberly-Clark similarly traded between $56 and $68 per share.

The "real" level of price oscillation in these stocks is even narrower than it appears at first blush. Factor in the increase in the underlying business value during the year, and the stock-price change is even more modest.

By my calculations, the business value of Clorox increased by $6 per share last year. The net effect is that more than half of the $10 trading range (from $56 to $66) of Clorox can be accounted for by the increase in business value.

Energizer: Still Going

While the big names in the household-products category provoke barely a yawn, there is at least one interesting story in this sector. Take a look at the five-year price chart of Energizer (ENR - commentary - Cramer's Take). As you can see, this stock has had an amazing run.

If you look only at the price history of this stock, you might reasonably conclude that this business is growing by leaps and bounds. But you would be wrong.

In fact, the business is just as boring and consistent as other companies in this sector. Operating and net margins have not improved over the past five years. The return on capital hasn't gotten better. Adjusting for the acquisition of Schick in 2003, organic sales growth has been anemic, up about 3% annually over the past five years. And shareholder equity is down, not up, over that same time frame.

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At time of publication, Alsin and/or ACM had no positions in any of the stocks mentioned, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor, and portfolio manager of The Turnaround Fund, a no-load mutual fund. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.