De-fense! De-fense! De-fense!
No, I'm not writing today about football fans rooting for their team to stop an opponent from scoring. Rather, I'm writing about what's happening in the markets...
You see, enough investors fear a hard-landing recession that they're looking favorably at "defensive" sectors and industries right now. And the Power Gauge helps us see that...
Now, you likely know the basics of a strong defensive play. Unlike cyclical firms, these companies offer stable revenue and profit streams. They're a good way to fight volatility.
Relatedly, many strong defensive plays make household products. That makes sense...
Even in bad times, we all need to brush our teeth and clean our homes. So these products are always in demand. And in turn, they provide stability for investors in uncertain times.
We don't want to load up on these stocks when the market is soaring. They'll likely lag. But when the crowd starts getting worried, they typically suffer less than most other stocks.
Of course, finding the right way to play defense is the tricky part...
Today, household products is among the best-rated industries in the Power Gauge. And we could look to capitalize through an industry-focused exchange-traded fund ("ETF").
But the problem is... no household-products ETFs exist.
So today, I'll show you how I use the Power Gauge to solve this problem...
We all know the household-products industry's four biggest players...
- Procter & Gamble (PG)
- Colgate-Palmolive (CL)
- Clorox (CLX)
- Kimberly-Clark (KMB)
If you held all four of these stocks for the past 20 years, you would've made a 195% gain. That performance trails the benchmark S&P 500 Index's 283% return over that span.
Don't let that fool you...
Overall, the past 20 years were terrific for investors. This period included two huge bull runs. So a generally lagging performance from a group of defensive stocks isn't surprising.
But not all household-products stocks underperformed...
For example, the lesser-known Church & Dwight (CHD) rose 1,639% over the past 20 years.
Even if you don't recognize this company's name, you've probably heard of its flagship product – Arm & Hammer baking soda.
Introduced in 1846, it helps baked goods rise. U.S. consumers eventually realized that it can be used to clean things as well. And many folks keep a fresh, open box in the fridge to eliminate odors.
Over the years, Church & Dwight launched or licensed other products under the Arm & Hammer brand. It now sells toothpaste, laundry detergents, deodorant, cat litter, baby-care items, and more.
So as you can see, we're not looking at a one-hit wonder. This company really knows how to grow a brand. And there's more...
The company has been an acquisition machine since 2000. Today, its best brands other than Arm & Hammer include First Response, Nair, Orajel, Trojan, OxiClean, and Zicam.
As I said, many investors are playing defense right now. And Church & Dwight is thriving...
It's up around 14% in 2023. That's much better than the average performance for the Big Four household-products companies of roughly breakeven. And it beats the S&P 500's return of about 10%, too.
The Power Gauge sees the continued opportunity in Church & Dwight...
Our one-of-a-kind system is "bullish" overall on the company. And it's "very bullish" in terms of key factors like relative strength and the Chaikin Money Flow indicator.
So if you want to get defensive today, consider following the Power Gauge's lead.
Good investing,
Marc Gerstein
