- Posted April 11, 2014 by
3 Big-Cap Household and Personal Products Stocks Micro-Caps Can Look at to Make it Big
The consumer household and personal products industry offers a wide range of products from personal care, cleaning products, repellents, to even pharmaceutical products. Consumers spend around $120 billion annually on household and personal products globally. The United States shares 25% of the total, according to Yahoo Finance.
Competition in the industry increased through the years with many newcomers cropping up on supermarket shelves. But despite being overcrowded, the industry’s diversity and scope have helped cushion the blows of the recession and allowed companies to generate healthy profits. And despite rising commodity prices in the past five years, the industry allowed shareholders to earn up to 7.7.%, noted a Seeking Alpha report.
Procter & Gamble and Unilever account for a huge chunk of the global household and personal product market, data from Yahoo Finance showed. The combined earnings of these two companies average at $80 billion per year. Consumers of these two companies are concentrated in North America and Europe.
In this article, I will discuss three big-cap stocks, namely, Kimberly-Clark, Colgate-Palmolive and Estee Lauder and how they managed to stay on top of top 10 lists worldwide over recent years. I chose these stocks based on how they fared on HAPPI’s top 50 household and personal product companies for 2013.
Kimberly-Clark seems like a boring stock for most investors given its line of products. But what sets it apart from competitors is that it makes the right kind of decisions that pay off. For example, according to a Seeking Alpha article, Kimberly-Clark explored the emerging markets of Russia, China and Brazil at a time when profits are slowing down for its competitor, Procter & Gamble. Soon enough, volumes increased in Australia, China, South Africa, Vietnam, Latin America and Russia.
Kimberly-Clark also diverted its attention to its healthcare product line. Last year, it won a bid to create KIMBUARD Sterilization Wrap products for Novation, which will make the product available to VHA, Inc., Children’s Hospital Association, and more.
In terms of dividend growth, the company showed strong rally in spring last year, with share-price gains finishing in at 20%, according to Fool.com. Returns meanwhile averaged at 11% since 1993.
Kimberly-Clark is quite expensive—trading at $111.07 at the New York Stock Exchange—but it is quite worth it if you are thinking of holding its shares for the long-term. After all, even if it faces tough competition in the market, Kimberly-Clark was still able to rank at No.1 or No.2 in terms of market share in 80 countries, Fool.com noted.
Colgate-Palmolive is a dividend stock that has always kept its buyers happy. Many investors remain loyal to Colgate-Palmolive for having increased dividends for decades despite the consequences of higher operational costs and mass layoffs. Stocks have in fact soared to as much as 50 percent in 2011.
The Fool.com report also said that Colgate’s growth was due to its recent market focus on Latin America and other emerging markets. Procter & Gamble’s failure to keep up with its competitors in terms of product innovation and its lower sales have allowed Colgate to step in and take the spotlight.
Meanwhile, Global Financial Data’s analysis revealed that even during the economic turmoil, Colgate-Palmolive’s return on equities averaged at 95.90% with a current ratio of 1. The ROEs of its competitors—Unilever and Procter & Gamble-- on the other hand, averaged at 35.8 % and 18.8%, respectively.
Estee Lauder broke into the personal products space in the 1940s with its Youth Dew line, perfume and bath oils. It continued to innovate with the launch of new brands like Clinique and Prescriptive in the 70s and 80s. In the 90s, it came out with its first wellness brand, Origins, to tap into the growing eco-conscious market.
Just like any growing companies, Estee Lauder must make acquisitions. Acquisitions help in augmenting market exposure and varying income streams a bit for companies. Estee Lauder bought into MAC cosmetics in 1995, marking its foray into acquisitions (the company then acquired La Mer, Bobbi Brown, Jo Malone, Smashbox and Darphin).
The company debuted on the New York Stock Exchange in November 17, 1995, with shares closing at $34.50. On Friday, company shares traded at 68.92 according to Bloomberg Businessweek.
What makes this stock attractive is that how it managed to steal the title from household and personal care bigwig SC Johnson. For the past five years, it traded places with Avon, settling in at number four for the past two years on HAPPI magazine’s list. Then it took the market by surprise when it overtook SC Johnson, who ranked third after Colgate-Palmolive (second) and Procter & Gamble (first).
The company recently overhauled its organizational structure in 2012, adding two more to its group of presidents to streamline its global M&A initiatives, according to HAPPI magazine. The move definitely pushed the company towards a more positive direction at a time when Estee Lauder is beefing up its sales efforts to recover lost earnings from the recession. By Q3 of 2013, the company’s earnings rose by a whopping 37% to $170 million.
The cosmetics and personal care industry in the U.S. will continue to grow at a steady rate up to 2017, according to Euro Monitor. As the aging population increases, and as household (disposable) incomes improve, more people will be buying “premium and value-added products”—an area Estee Lauder specializes in.
Yahoo Finance noted that Wal-Mart Stores and similar companies may change the rules of the game for companies. As Wal-Mart expands across the globe, it needs to stock up on more global brands. This, however, may not work in favor of mid-caps and small-caps that have moderate or less market reach globally. Also, according to Yahoo Finance, Wal-Mart will also be promoting its own offerings more which could make the Supermarket giant a competitor to the big brands it distributes.
On the other hand, this could be the breath of fresh air small players in the industry have been waiting for. A lot of emergent micro-caps and small-caps with huge growth potential, such as Pacific Shores Holdings, Inc. (OTC: PSHR), and SED International Holdings (NYSE: SED), which are both engaged in manufacturing personal care products, could use this opportunity to edge up in the highly competitive industry.
Tighter competition among big caps buys small players time to carve a niche and increase their customer base in their small territory. Pacific Shores Holdings, Inc., for example, provides investors value by catering all natural therapeutic heat and cooling packs to the aging geriatric population through its Thermal-Aid product line. The company also had a win recently with its eco-friendly pest management product Nature-Cide in the greater Los Angeles area. Its products are slowly gaining exposure as well on Amazon, Costco and Ralphs.
As big-name companies battle it out, underdogs like the above mentioned micro-caps can grab the opportunity to capture markets that big-caps have not yet penetrated. With strong product innovation, effective promotional initiatives, and good operations, and maybe capturing emergent markets, micro-caps will have a better chance in expanding quicker as their big-cap counterparts.