Companies with a strong brand have pricing power. They can raise prices faster than a product without a brand attached to it. That can create a valuable company, and one with higher profit margins than competitors.
With a market correction, many companies with strong brands have seen their shares get thrown out like the proverbial baby with the bathwater. Astute investors should view big selloffs as buying opportunities.
One such opportunity may be in Clorox (CLX). The cleaning supply brand, best known for its bleach, saw shares drop over 14 percent as the company reported that rising costs impacted the company’s profit margins.
Shares are now trading at a lower point than at any time during the pandemic, including the early 2020 selloff in the stock market. That’s in spite of the fact that, like so many consumer goods companies, higher prices will offset the current drop in profit margins.
Action to take: With shares at a multi-year low, any move to restore the company’s profit margins, which have narrowed to 6 percent, will likely be met with a strong rally. As the company has a history of dividend growth, investors may like shares here, where they can get a starting yield just under 2.8 percent.
For traders, the June $150 calls, last going for about $5.25, offer potential upside in the coming months as shares shake off the short-term drop from the latest earnings report. Traders should look for mid-to-high double-digit gains and book profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.