Kimberly-Clark is undervalued

Posted Jun 22nd 2009 5:00PM by Joseph Lazzaro
Filed under: Kimberly-Clark (KMB), Stocks to Buy

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable, global trend as a support. And with the aforementioned in mind, Kimberly-Clark Corporation (NYSE: KMB) is worth a review.

In general, analysts expect a sales decline of 4-6% for KMB in FY2009, including a negative foreign currency effect. Kimberly is being hurt by both the recession -- which has prompted widespread belt-tightening by consumers -- and by increased competition. The First Call FY2009/FY2010 EPS estimates for KMB are $4.16 to $4.64.

However, commodity and raw material cost increases should moderate in FY2009, and that fact, combined with an economic recovery in emerging markets, led by Asia, should improve the story heading into FY2010 -- which builds the case that KMB's stock is a tad cheap at these levels.

Stock Analysis: Kimberly-Clark is a moderate-risk stock. Consider buying a 25% position in KMB now; then buy another 25% in four months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your KMB position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $32.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: asia, emerging markets, EmergingMarkets, kimberly clark, KimberlyClark