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The Purrrrrrrrrrrrfect Stock for the Current Market

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November 18, 2008 – Comments (0) | RELATED TICKERS: ODC

 

Oil-Dri Corp. of America (ODC), a producer of kitty litter and absorbent chemicals used in factories and garages, is another consumer staple company (or in this case I suppose that you could call it a cat staple) that should weather the current economic downturn better than more discretionary companies.

Not only are consumer staples benefiting from more resilient consumer demand, they also are benefiting from the recent plunge in the price of commodities...in this case natural gas. The company uses nat gas to dry the clay that it uses as an input for many of its products. Natural gas prices have fallen nearly 50% from their July peak. This will have a positive impact upon ODC's margins, helping them return to their historical level of 25% from their recent depressed level in the teens.

Even with the headwind from high commodities prices, Oil-Dry managed to increase its earnings by a steady 15% annually over the past five years. A return to its historical margins would help profitability and possibly entice Mr. Market to reward ODC with the average earnings multiple for household products companies, 17 versus its current 12 and change.

ODC also would benefit if consumers try to cut costs and go with generic kitty litter. It provides major retailers like Wal-Mart with private label products.



Deej

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