Solid Fundamental and Technical Signs Could Lead to Double-Digit Profits From This Well-Known Stock

By Melvin Pasternak,

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Sometimes you don't have to scour the market for a good trade. Occasionally, it can be found in some of the most visible stocks on the market.

Clorox ( CLX ) , also known as "the bleach company," looks to be one of those trades. As a top manufacturer of cleaning products, Clorox sells a number of other recognized consumer brands, including Hidden Valley salad dressing, Brita water-filtration systems, Glad garbage bags, Kingsford charcoal and Burt's Bees personal care products.

Already selling its products in more than 100 countries worldwide, Clorox continues to expand internationally by introducing new niche items like Green Works environmental cleaning supplies to growing markets in Asia and Latin America.

With competitive pricing, successful marketing and effective internal cost controls, Clorox shows the potential for solid future revenue and earnings growth.

Clorox is also technically strong. Since hitting a low of $43.46 in March 2009, the stock has soared +52.5%.

From May onward, the stock has been probing a series of new 52-week highs. In the September 6th trading week, CLX hit a high of $66.67, and is now attempting to pierce the upper Bollinger band, currently intersecting at $66.64.

Just this past trading week, the stock successfully broke $65.12 resistance -- which it tested several times during the summer.

The stock bullishly broke out of a small ascending triangle formation, formed by $65 resistance and the major uptrend line.

In 2007, the stock reached an all-time high of $67.98. Therefore, there would be no historic overhead resistance above this level.

CLX has moved past its rising 10- and 30-week moving averages, which intersect at $65.62 and $65.03, respectively.

The indicators are bullish. MACD has just given a buy signal, while the MACD histogram is inching into positive territory.

Relative strength index (RSI) has been on a sustained major uptrend since February 2009. At 63, RSI has surpassed the key 50 juncture, but is not yet highly overbought.

Stochastics, has given a buy signal and is rising.

Clorox also has strong fundamentals and a promising outlook. In early August, the company posted upbeat fourth-quarter and fiscal year 2010 results (for the period ending June 30th, 2010).

Quarterly revenue increased in line with analyst projections, growing +2% to $1.52 billion, from $1.49 billion in the year-ago period. Growth would have been stronger if the company had not been negatively impacted by unfavorable currency translation of the Venezuelan Bolivar. However, increased sales of Kingsford charcoal and Hidden Valley salad dressing helped offset this loss. Clorox also repurchased 2.4 million shares during the quarter.

For the 2010 fiscal year, revenue rose +1.5% to $5.53 billion from $5.45 billion in the previous fiscal year. Company-wide cost-savings, combined with higher prices for several of its products, drove growth.

For fiscal year 2011, Clorox expects to achieve from +2% to +4% sales growth as the company continues to expand internationally. In fiscal 2012, analysts project revenue will increase an additional +3.5% to $5.9 billion.

The earnings outlook is similar.

In the fiscal fourth-quarter, earnings were $1.20, the same as the year-ago period. However, full-year fiscal earnings increased +12% to $4.24, compared to $3.79 in fiscal 2009. Lower expenses, combined with higher sales, created the gain.

For the full 2011 fiscal year, Clorox projects earnings in the range of $4.50 to $4.65, which translates to +8% growth from the previous year. By fiscal 2012, analysts believe international expansion, especially of the Burt's Bees brand, should cause earnings to rise another +8.5% to $4.97.

Clorox is also reasonably valued. Its forward price-to-earnings ratio (P/E) is 13.3. By comparison, competitors Colgate-Palmolive ( CL ) and Proctor & Gamble ( PG ) have moderately higher P/E ratios of 14.4 and 14.0.

Clorox also has a more attractive price-to-sales (P/S) ratio of 1.7. Colgate-Palmolive's P/S ratio is 2.3 and Proctor & Gamble's P/S ratio is 2.2 -- the lower the P/S ratio, the better the valuation.

Furthermore, Clorox also offers a solid 3.3% dividend yield . This attractive yield isn't likely to go away anytime soon: Clorox has been paying an uninterrupted dividend since 1968 and has increased its dividend payment every year for the past 31 years.

Action to Take --> Because Clorox shows attractive valuation, steady growth potential and solid technicals, traders may want to go long on this stock if it pierces its upper Bollinger band, which currently intersects at $66.60. I would place a buy-on-stop order at $66.63, just above the upper Bollinger band. This means if CLX does not hit or go above $66.63, you will not enter the position.

-- Dr. Melvin Pasternak

Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading. With more than 25 years experience...  Read more.

Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC hold positions in any securities mentioned in this article.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing Stocks
Referenced Stocks: CL , CLX , PG

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