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WALL STREET, CALIFORNIA | STOCK EXCHANGE

Cleaning Up With Clorox; Liberate Stock Won't Set You Free--Yet

Stock Exchange lets readers listen in as Times staff writers James Peltz and Michael Hiltzik debate merits of individual stocks.

October 17, 2000|JAMES PELTZ and MICHAEL HILTZIK

Clorox (CLX)

Jim: Buy

Mike: Buy

*

Mike: This is a stock, Jim, that disproves one of Gertrude Stein's famous apercus.

Jim: I don't believe it--for once I actually understand what you're talking about.

Mike: You do? Rats.

Jim: You're talking about what she said about Oakland: "There is no there there."

Mike: But what she apparently forgot, or didn't realize, is that Oakland is the bleach capital of the world.

Jim: Correct, Clorox is headquartered in Oakland, and sitting pretty I might add.

Mike: I view Clorox as a nice little secret. Like a leafy neighborhood that nobody knows about, where the housing values are high but you can still get in at a good price.

Jim: I agree. Clorox is a solid company, in good part because it's a maker of household cleaners and other consumer products that does more than slap "New and Improved!!" on its products. It actually tweaks its brands with real changes, and that has helped the company gain market share.

Mike: But this is not just a household cleaners company.

Jim: Not at all. Why don't you rattle off some of their products?

Mike: It's always fun to list the brands of a company that you never thought would belong together. There's Clorox bleach, of course, and Liquid-Plumr, Formula 409, Pine-Sol, Combat and Black Flag insecticides, Kingsford Charcoal . . .

Jim: Not to mention Match Light charcoal.

Mike: And if you cook your steaks with Kingsford and overdo them and feed them to the cat, Clorox provides you with Jonny Cat cat litter, you know, to sort of handle things at the other end. Cradle to grave, so to speak.

Jim: I'll bet Clorox's marketing chiefs never even thought of that. Anyway, about 18 months ago Clorox bought First Brands Corp., which is where it got Jonny Cat, along with STP auto additives and Glad plastic bags. The purchase also nearly doubled Clorox's annual sales to about $4 billion.

Mike: And let's not forget K.C. Masterpiece barbecue sauce and Hidden Valley salad dressings. So basically you can take half of Clorox's products and drip them on your shirt, then get rid of the stains with the other half.

Jim: So here's the deal: In the latter half of the '90s Clorox and its stock were on fire. As I said, Clorox--under Chief Executive G. Craig Sullivan--kept challenging its people to improve its main brands, and most of them are still No. 1 or 2 in their markets.

Mike: Mention some of the changes.

Jim: Well, take Pine-Sol. People weren't wild about its pine smell, so Clorox added a lemon scent and the cleaner's sales took off. Same with Clorox bleach. Even though it dominates the bleach market, Clorox heard too many complaints about its heavy chlorine odor, so it toned it down. Sales improved there, too.

Add it all up and Clorox's earnings per share soared 94% between 1994 and 1998. Its stock, in turn, shot up an average 37% a year between '94 and '98, which was far better than the broader market.

Mike: Not so this year.

Jim: You're right, because Clorox had much more trouble digesting First Brands than anyone expected, which crimped its growth and annoyed investors. So the stock is unchanged for the last 12 months.

Mike: But now Clorox is basically done blending First Brands into its corporate structure, and it's poised to reap the benefits from combining advertising costs, purchasing power and overhead expenses while getting additional sales from products it acquired from First Brands. So what's not to like?

Jim: Nothing. I'd buy this stock today.

Mike: Me, too. This is a classic, old reliable. It's a solid company, with quiet but effective management and great knowledge about its customers and the markets in which it competes.

Jim: Clorox also is selling at a very appealing price, about 21 times the per-share profit it's expected to earn in its fiscal year ending in June. This stock will make you money and you'll sleep easy at night.

Liberate Technologies (LBRT)

Jim: Don't buy

Mike: Buy

*

Jim: We've gotten several requests to look at this outfit . . .

Mike: From television-watchers, no doubt.

Jim: Perhaps, but mainly because they see a stock whose 52-week range goes from a high of $148.50 a share to a low of $16.

Mike: Sounds like just about every technology stock.

Jim: So I can see why Liberate Technologies, which now trades in the low $20s, piques people's interest. First, though, tell us what this company does.

Mike: I'll try to do it without using jargon.

Jim: I insist you do it without using jargon.

Mike: This company enables broadcasters and marketers of new forms of TV content to come together and put everything on your TV in a way that's consistent, reliable and works. Basically, Liberate provides a platform or an operating system . . .

Jim: That's without jargon? It makes software.

Mike: Yes, it's software. The way Microsoft provides operating software for your personal computer, Liberate hopes to provide operating software for your TV and those of your neighbors.

Jim: Can't you be a little more precise?

Mike: You're really pushing me.

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