Wall Street can't generate enthusiasm for the companies listed below. So why do our Motley Fool CAPS members disagree? They've bestowed on these companies the highest four- and five-star ratings, signaling their faith that the associated businesses will outperform the market, while Wall Street offers lackluster support at best.
So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
CAPS Rating (out of 5)
No. of Analysts
Wall Street Bullish Sentiment
CAPS Bullish Sentiment
|Cemex (NYSE: CX )||****||15||67%||96%|
|Clorox (NYSE: CLX )||****||11||55%||95%|
Source: Motley Fool CAPS.
Now as much as we love our CAPS community, don't buy these companies just because they've garnered top ratings. And don't sell 'em just because Wall Street says to, either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.
Swim with the fishes
As the largest producer of cement in Venezuela, Mexican cement maker Cemex became the target of the country's ruling strongman Hugo Chavez and saw its operations, along with those of Lafarge and Holcim, stolen from it during a wave of nationalization. The dictator manufactured a crisis and used it as justification for undoing the previous administration's privatization policies. A housing boom led to rising cement prices, but with Chavez imposing price controls, the equilibrium between supply and demand was thrown out of whack. He then rationalized the seizure by pointing to the balance being upset.
At least Chavez pays his victims for his theft, though he tends to lowball the price tag. ConocoPhillips (NYSE: COP ) wanted $20 billion in compensation and ExxonMobil (NYSE: XOM ) $12 billion when they saw their oil operations stolen; Chavez offered $1 billion. Exxon has since lowered its asking price to $7 billion. Lafarge ended up getting $250 million for its cement assets and Holcim got $650 million.
Cemex rejected an initial $650 million offer from Venezuela, saying its assets were worth $1.2 billion, but facing interest payments coming due on $15 billion worth of debt, the Mexican cement maker just agreed to accept $600 million. That debt is one reason why CAPS member siloguy1 thinks Cemex will have a problem beating the market indexes.
Too much debt. Bad short term in construction. Mexico may want to break Cemex up to avoid a "too big to fail" problem.
Now Chavez is doing the same thing with consumer goods, slapping price controls on some 15,000 items and forcing Procter & Gamble (NYSE: PG ) , Colgate-Palmolive (NYSE: CL ) , and others to report their production costs to the government. The people see what's coming and are stocking up on essential goods, causing shortages. Get ready for the heavy hand of government to intrude again.
Yet rising raw materials costs have been the primary cause of rising prices. Clorox was able to offset some of its costs by increasing prices, but its operating profits still narrowed even as revenues rose. While Clorox does have a presence in Venezuela, the country only represents 2% of its annual revenues, and though the inflationary economy sapped $0.11 worth of earnings per share, the overall impact should be kept to a minimum should Chavez flex his dictatorial muscles once again.
Clorox was probably more concerned with Carl Icahn trying to take over the company this past September while encouraging Procter & Gamble and others to make a bid. Having successfully defended against the action -- Icahn's slowly exiting his position now -- Clorox can focus again on building sales for its potent portfolio of products: More than 80% of its products are No. 1 or No. 2 in market share.
CAPS member mrmcmath likes the solid lineup of goods and its dividend, which currently yields 3.7%. I do too, and marked the consumer-goods leader to outperform the market, but tell us on the Clorox CAPS page or in the comments section below whether you agree. Then follow its progress by adding it to your watchlist.
What's wrong with that?
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