Cleaning Up With Clorox; Liberate Stock Won’t Set You Free--Yet
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.
Jim: What am I doing on my TV that Liberate is helping me to do?
Mike: Today you’re not doing anything.
Jim: Which explains why this company is losing money.
Mike: Look, today you’re sitting back with a beer and watching whatever’s on, whether it’s “Big Brother” or the Olympics. Now when you watched the Olympics, you were watching events that were 36 hours old.
Jim: What else is new?
Mike: But once Liberate gets geared up, maybe you’ll be able to get--perish the thought--events that are a couple of minutes old, on demand. The point is that today TV is just TV. But everybody in the entertainment and high-tech industries seems to agree that the boob tube is going to deliver a lot more in the future.
Jim: Such as?
Mike: Such as a lot of material that looks as if it belongs on the Web, but that you’ll get on your TV set instead, or as well. Say, movies on demand: You can point your remote at the TV and, with a couple of strategic clicks, order the latest movie or an old movie. Or a video or video game.
Jim: Or you can get stuff off the Internet, via your TV.
Mike: Right. You might also be able to click on the screen and order, say, the sweater that Buffy the Vampire Slayer happens to be wearing. And so on.
Jim: We have talked before about all these companies that are in this food chain of interactive TV. They also include companies that make the set-top boxes that would contain Liberate’s software.
Mike: Right, but where are you going with this?
Jim: I’m going to point out that Liberate is still a very small company, with sales last year of about $28 million. And it’s expected to keep losing money for at least the next two years. So no wonder that, when the bloom came off tech and Internet stocks this spring, Liberate got smashed. It has lost about 80% of its value so far this year.
Mike: The stock now looks like the Nielsen rating for “Deadline.” However, I like this company.
Jim: So do I. It’s the stock I don’t like.
Mike: When you’re at a point where everybody doesn’t like the stock, isn’t that time to buy?
Jim: How many times are we going to have this argument?
Mike: I think every week.
Jim: Liberate has a promising technology, I agree. Cisco Systems has invested in this outfit. AT&T; bought Liberate’s stuff for its interactive-TV plan. But I’m sorry, I see this whole interactive TV business evolving very slowly. For years now, this industry has been talking about all the things we’re going to do with our TVs, but most of us are still just, well, watching TV.
Mike: Excuse me, Jim, but the mobile-phone industry spoke for years about the day when everyone would walk around with a cell phone, and at first it went slowly. Until one day we woke up and everybody did have one.
Jim: Fine. But if you invested in that business, for how many years did you own stocks that weren’t worth anything?
Mike: What are they worth now?
Jim: If you can tell me when interactive TV will become as commonplace as wireless phones, I’ll sit up. But right now I don’t see Liberate’s stock going very far, for at least the next 12 months. Mike, you’ve said yourself that this field won’t take off until the technology is as easy to operate as turning on the TV. And you’re right.
Mike: But that’s what Liberate is striving to do. They’ve got the easy, consistent operating system so that all this stuff works. I don’t think it will take a year, but I agree that it’s going to be a while before our fellow investors come back to companies such as Liberate.
Jim: Look at the market we’re in now, Mike. Some of the largest, most profitable tech companies in the world are getting the smithereens beaten out of them.
Mike: That could turn on a dime. I mean, Lucent Technologies will be worth a dime first, but. . .
Jim: You’re right, a lot of those companies are screaming buys. But don’t kid yourself: Investors are going to focus on those stocks first, before they think about plunging into the likes of Liberate. So I just don’t see how one can make much money with this stock right now.
Mike: Yes, it’s perfectly plausible that things are going to look a lot worse for Liberate’s stock price before they look better. But in time, they’ll look a lot better. It’s a speculative bet, but if you’re willing to speculate, it’s a good bet.
*
Write or e-mail with a stock you would like to see discussed in this column. Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Hiltzik (michael.hiltzik@latimes.com) covers technology and entertainment and is the author of the book “Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age” (HarperBusiness). Either can also be reached at Business Section, 202 W. 1st St., Los Angeles, CA 90012.
*
You can hear a preview of Peltz and Hiltzik’s weekly column Mondays on the KFWB-Los Angeles Times Noon Business Hour on KFWB-AM (980).
