Top Picks 2007: Forbes Quant shops for Church & Dwight

Posted Jan 1st 2007 2:30PM by Steven Halpern
Filed under: Newsletters, ETF Investing

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Church & Dwight Co. (NYSE: CHD) is the favorite conservative pick from quantitative analyst Vahan Janjigian, editor of The Forbes Growth Investor. He explains, "Church & Dwight makes household products with brand names such as Arm & Hammer, Arrid, Nair, Trojan, and Brillo.

"It is also the largest U.S. producer of sodium bicarbonate. In addition it sells other specialty inorganic chemicals used in industrial, medical, food, and agricultural applications, and it makes animal nutrition products.

"Last July, CHD acquired Orange Glo International, maker of OxiClean, a pre-wash additive. It also produces bathroom cleaner Kaboom and Orange Glo, an all-purpose cleaner. With annual sales of roughly $200 million, this purchase strengthens CHD's household products business. It should also lead to cost savings once fully integrated.

"Rising commodity costs negatively impacted gross profit margins in 2005. CHD responded by implementing initiatives such as price increases of 4 to 10% on about a third of its U.S. consumer products, the elimination of unprofitable trade promotions, and supply chain improvements.

"Such actions limited revenue growth, but the good news is that profit margins improved markedly. The gross profit margin improved to 39.1% from 37.8% a year earlier despite higher raw materials costs. Net income climbed 11.8% to $38.7 million or $0.57 per share.

"Rising raw materials costs are the most important investment risk, especially since competition may limit further price increases. In addition, greater marketing and R&D expenses will persist over the near term as CHD continues to support new products. However, increased marketing activities should eventually produce better volume growth and higher profits."

To see Vahan's top speculative idea for 2007, click here.