Clorox (CLX): More than bleach

by Dr. Melvin Pasternak, editor Double-Digit Trading

What's the link between Kingsford charcoal, Hidden Valley salad dressing, Brita water filtration systems, Glad garbage bags and Burt's Bees personal care products?

Surprisingly, these diverse products are all brands of Clorox (CLX) -- thought of by many people as "the bleach company."

A leading manufacturer of cleaning products and consumer stapes, Clorox sells some of the most recognized and often trusted household names. In fact, consumers rank nearly all of Clorox's products as top brands.

Competitive pricing, effective marketing and catchy advertising has helped win customers. In addition, strong internal cost control measures have helped keep prices competitive.

Clorox's products are manufactured in more than 24 countries and sold in more 100 countries worldwide.

The company continues to grow internationally by introducing new products -- like Green Works environmentally friendly cleaning supplies and Burt's Bees personal care products -- to fast-growing economies in Latin America and Asia.

With a steady future revenue and earnings growth outlook, Clorox is an attractive long candidate. As a defensive stock, it is a pick money managers may gravitate to in an uncertain environment.

Technically, Clorox's chart appears bullish. Since hitting a low of $43.46 in March 2009, the stock has gained +48% to date.

Forming a major uptrend line off its March 2009 low, CLX has rallied sharply during the past year and a half.

Since May, the stock has hit three new consecutive 52-week highs. Its most recent high was in late July at $66.44 when it broke out of a rectangle formation.

Despite general market weakness, CLX has continued to rise. The stock recently tested resistance near $65, nearly breaking a small ascending triangle formation.

If it can complete the formation, the measuring principle --calculated by adding the height of the pattern to the breakout level-- projects a minimum price target of around $69.

CLX is above its 10- and 30- week moving averages, which intersect at $63.89 and $62.41, respectively. It is also approaching the upper Bollinger band which intersects at $65.67.

Important support dating back to December 2009 is marked by the intersection of the lower Bollinger band at $61.11, which is also the boundary of the lower part of the rectangle.

The indicators are mostly bullish. MACD appears to be on the verge giving a buy signal. The MACD histogram appears to be on the verge of entering into positive territory.

Dependable fundamentals are a hallmark of Clorox. Full year 2010 revenue increased +1.5% to $5.53 billion.

For fiscal year 2011, Clorox reaffirmed its expectation for +2% to +4% sales growth as it continues to internationally expand. In fiscal 2012, analysts expect additional +3.5% growth, with sales of $5.9 billion.

The earnings outlook is also consistently steady. Fiscal year 2010 results showed the company achieved a healthy +12% earnings gain during the year. Earnings were $4.24 a share.

Clorox recently confirmed its fiscal year 2011 earnings outlook. The company expects earnings in the range of $4.50 to $4.65 a share. This would represent at least a +8% gain.

By fiscal 2012, analysts expect an additional +8.5% growth, with earnings of $4.97. International growth, especially of its recently acquired Burt's Bees brand, is expected to drive the company forward.

In addition to a moderate, but consistent growth outlook, the company is also fairly valued; its forward price-to-earnings (P/E) ratio is 12.9. Clorox also offers a 3.4% annual dividend.

Given that Clorox has a strong chart and a moderate, but steady growth outlook, I plan to go long on this household products company.

I will place a buy-on-stop order at $66.45, near the stock's most recent high. This means if CLX does not hit or go above $66.45, I will not enter the position. My initial target is $73.98. My stop-loss is $60.94 -- important historical support.

Learn more about this financial newsletter at Dr. Melvin Pasternak's Double-Digit Trading.