Clorox Stock Continues To Create Put Selling Profits

Clorox Stock (Clorox Stock Symbol CLX) has been on my watch list for the past couple of weeks as I have watched Clorox Stock pull back with a reasonable amount of selling by investors. Overall Clorox Stock is not the most liked stock among analysts. Many feel it is overvalued at these levels and indeed fundamentally there are a number of things not to like about Clorox Stock. But I have followed Clorox Stock for more than 20 years and overall I like the company. I have been successfully Put Selling Clorox stock for years. What a lot of analysts do not understand about Clorox is that this is a small company in comparison to companies like Procter and Gamble (stock symbol PG).

To understand Clorox stock better and see why yesterday I bought stock and did more Put Selling, selling out to January 2013 at $65, let’s do a quick financial review.

Clorox Stock Financial Snapshot

Earnings have been good but book value is terrible at negative $1.04. Basically, if Clorox folded today and all assets were sold, it would be in a negative position. Cash flow in Clorox Stock is excellent at $5.45 per share. Price to sales is very good at 1.7 times where companies like Procter and Gamble are at 2.3 times. Profit margin is low at 9.93% when compared to its peers. Procter and Gamble is at 11%. Clorox needs to improve its profit margin but it is being squeezed on pricing and that makes it difficult to increase prices to improve the profit margin.

The Clorox Stock dividend payout ratio is good and below its peers which are above 65 times.

Debt to capital is a problem for Clorox and analysts spot this immediately. It is way above its peers where many are at just 35%. Clorox is at 105%. Market cap is small for Clorox. Procter and Gamble for example is at 190 billion. They could easily buy out Clorox which is part of the reason Clorox Stock has always traded a bit on the high side. Analysts and institutional investors know that Clorox could easily be snatched up by competitors.

Clorox Stock Financial Snapshot as of Sept 18 2012

Clorox Stock Financial Snapshot as of September 18 2012

So with Clorox Stock financial snapshot showing the areas of concern, my strategy for Clorox Stock has always been to never own shares other than for a quick trade such as yesterday and Put Selling which is my main investment strategy for Clorox Stock.

Let’s review Clorox stock over the past 6 months.

Clorox Stock 6 Month Chart

My prime strategy is Put Selling. The Put Selling strikes for Clorox stock that I have tried to stay with are $67.50 and $65.00. Both of these put strikes have been ideal for Put Selling but the premiums have been poor for one or two months out as Clorox Stock has stayed in the above $70 range since June. Above $70 though, I believe Clorox Stock is overvalued. The problem for a lot of investors is that many other investors believe the same thing as well.

Here are the key aspects of the Clorox Stock below:

A) The stock is facing stiff resistance above $73.00. Four times since June Clorox Stock has climbed above $73.00 and fallen back. This is not a great sign and shows that resistance is a serious problem above $73.00. Clorox must improve its financial fundamentals or be bought out for Clorox Stock to climb above $73.00 and make a new high that can be held. Then it must set a new trading range at those higher levels. It has not been able to do this and as such it is impossible for me to consider Put Selling Clorox Stock anywhere above $70.00.

B) Point B shows that twice the stock pulled back into the mid to low $70.00 and then ran back up. The run up hit resistance and then there was selling again. The third point B shows what can happen when the stock cannot make new highs. Clorox Stock fell lower with the third point B making a lower low. I expected a rally off of yesterday’s selling which is why I bought 500 shares yesterday below $70.00. However I doubt the next rally up can break $73.00 and I expect it will not even reach $73.00. I think the next move lower, based on these Technicals, will be lower than $69.50 and could take the Clorox Stock below $69.00.

I am doing Put Selling on every pullback but only a handful of puts and months out as I expect the stock will fluctuate as it has since June. Therefore I do not mind Put Selling at my $65 and $67.50 strikes as I feel Clorox Stock is fairly valued at those prices. However I see no point in waiting for Clorox Stock to pull back below $69.00 to begin Put Selling. It could take many more weeks for Clorox Stock to fall or it could happen in a few days. No one knows with any certainty so the key strategy is to continue Put Selling at the strikes I favor, but do just small lots on pullbacks and stay far enough out in time to allow me to buy back those sold puts as premium erodes and then sell more puts again as Clorox Stock continues to fall.

C) The last high was lower than the previous 3 and note how the latest low was lower than the previous 2. Unless Clorox Stock can break through resistance at $73.00 and set a new higher trend, I believe there is no way for Clorox Stock to stay above $70.00 when it pulls back. By Put Selling the $67.50 and $65 puts I am staying in the range I expect Clorox Stock will eventually trade in. When that happens I will move my Put Selling lower.

Clorox Stock showing 6 month Clorox Stock price chart

Clorox Stock showing 6 month Clorox Stock price chart

Clorox Stock Put Selling Trade Summation

You can see then that I am basically almost bottom fishing in Clorox Stock. Whenever Clorox Stock pulls back I look for that extreme oversold reading in my stock technical analysis tools and then sell puts at either the $67.50 or $65 strikes and I usually stay a few months out. On Monday I sold the January 2013 $65 put strike but again I did just a handful.

By staying bottom fishing I am certainly not going to get rich but I can earn some income to assist my overall portfolio, aware that the returns are low. I am not as concerned about the returns as I am in being assigned at what I believe are overvalued levels which means staying below $70 valuation. Instead I can buy to close my naked puts when the stock moves back up and then go back to Put Selling them again when Clorox Stock pulls back down. By doing this I can earn more than half a percent a month and that’s fine for this trade.

At some point though the constant up and down in Clorox Stock will end any I will close my positions and if the stock does follow what I am expecting I will then do Put Selling at lower strikes than where I am presently. Until then though this Put Selling trade on Clorox Stock suits me just fine.

Clorox Stock Internal Links

Review Clorox Stock Trades For 2012

Review Clorox Stock Trades For 2011

Review Clorox Stock Trades For 2010

Review Clorox Stock Trades For 2009

Review More Clorox Stock Trades Articles

Clorox Stock External Links

Clorox Stock Investor Information

Clorox Stock Analysts Recommendations

 

  • Dave

    Teddi, would you be willing to post an email, with no “advice” made (in other words, we are “on our own”) as an alert style of posting: “CLX has entered a trade zone” or “Watching the following stocks as they pull back. I missed this doggone trade! It was on my radar and for some reason, I missed it.

  • It’s tough isn’t it Dave. I see what you mean. I did post it quiite a few times on twitter and I posted when I was doing the trades. I will try to post notices with those headings in the subject line. That should help a lot. Make sure though you read my Clorox stock article. I do not believe this rally will hold. I do this it is overvalued so you will probably get a good opportunity shortly again.