Final Segment 1

Final Segment 1 Title: 'Cleaning Up' .  .  .  .  . Featured Stock(s): Kimberly-Clark Corp. (KMB) See KMB's official investor relations' site here. See the Yahoo! Finance profile for KMB here.

After this segment, you can see Jim's Sudden:Death picks here...

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JJC:    In the aftermath of yesterday's Verdun-like blood-letting in the market, wouldn't you just love to own a stock that was actually able to go up, when the Dow tumbled 238 points, and then go up again, when today the market even reversed?... okay, I got one... Look no further than my old buddy pal friend, Kimberly-Clark Corp. (KMB)...

Boy, it's been ages since I talked about this one, KMB, and the last time I talked about it, I didn't like it, and you'll know why in a moment... KMB is a classic defensive stock, the kind investors ordinarily flock to during periods of economic slowdown, but this is one that has been beaten bloody by cost inflation courtesy of higher oil and natural gas prices, a process that I believe is sure to reverse itself now that happier days could be here again, thanks to lower oil and natural gas prices...

Despite today's $1.36 increase, KMB, one of the greatest brands of all time, I mean, come on think about it... You know the brand Kleenex, have you seen this box?... These guys have some times on their hands... All right, is off 17% for the year... That's a stunning decline for a high-quality company with whom every single brand resonates with quality... You know KMB is tissues, diapers and feminine hygiene products... This is the company that makes Kleenex, Cottenelle and Scott tissue... It's also the proud maker of favorite diapers here on Mad Money... Huggies, Pull-Ups and Depends... Now, you may not notice under my outfit, but um, this 63 year old man won't start filming a show without his Depends on... KMB is also very likely the company that makes soap and paper towel fixtures, along with the paper towels for your bathroom at work, although you probably aren't there to check them out... And the company has also got a small healthcare business based on disposable products like surgical gowns, exam gloves and face masks...

KMB was once synonymous with playing defense... But now this recession stock is a mere 7 points off its 52-week low... Why?... Why did I say that I didn't like it earlier?... Because practically everything KMB makes is either made out of polypropylene or similar plastics or cellulose fiber, like its toilet paper... Companies like KMB that make a lot of plastics are essentially hostage to oil prices... It's the key metric you need to know... You need oil to make all those different polys... For every dollar the average annual price of oil increases, KMB's annual earnings lose a penny... Dollar, penny... And for every dollar increase in the annual average price of natural gas, KMB's earnings lose $.04 cents... Okay, and remember we've gone from $8, went up to $13 and change... We've come back to $9... Plus, the cost of pulp to make quality toilet paper has also increased, so every raw cost they have when they make all these products has just skyrocketed... These costs have gotten so out of control that on July 14th, just a couple weeks ago, the company pre-announced a worse than expected quarter...

I haven't seen this from KMB in a long time...

They reported a $1.03 of earnings per share, the Street expected $1.09... The funny thing is KMB's business is actually doing better than expected when it comes to the revenue side, the sales... The company posted strong sales growth of 11%... But, it was assuming that oil would cost $100 on average for the quarter when it made its projections that it disappointed... It presumed that nat gas would be between $8 and $9 per million thermal units, instead of the $13... Okay?... As it turned out, the average cost of oil for the quarter was really $125 a barrel and the average cost of gas was $11.50... Those were both well above what KMB estimated it was going to have to pay... Now, today when we heard from Colgate-Palmolive Co. (CL), a personal promise company that is similarly exposed to oil prices, they got around the cost inflation problem, and they reported a better than expected quarter by raising prices on average by about 4.5%... KMB apparently has another price increase in the works and if Colgate can work right now, I mean that stock rallied $5.59 off of the quarter, which was improved by those price increases, well then, you know what?... Now that KMB is at $57, I think it can start working too... Now, here's why... In response to missing its second quarter, KMB went overboard in the other direction... They finally and we saw this in United Parcel Service, Inc. (UPS) the other day, we said the same thing, that stock is on a tear... They finally are giving out very conservative, lowered guidance... Remember, we like under promise, over deliver... We hate over promise, under deliver, which was what John Thain's problem was and Patricia Russo at Alcatel-Lucent (ALU)... They lowered guidance for their full year earnings and for its third quarter earnings... This company was burned once because it underestimated oil and natural gas... It's determined not to get burned again... Where as before KMB anticipated cost inflation of $400 million for the year, now it's anticipating $900 million... And I think with the recent declines in oil and natural gas, natural gas went right through $8, $9 today, it bounced back, I don't think it's going to hold... The input cost, counterrevolution to KMB has finally gotten too far... With oil and gas down big, the company's new attitude just means it's setting really low expectations, ones that it can beat... For the full year, KMB is assuming oil prices will be between $135 and $145 a barrel... But we've seen oil break down to $122 and change... That helps from everything with plastics, most of this stuff, which the company expects to spend $60-70 million in total this year, polymer prices get reset every month... KMB pays to negotiate the price between the peaks and troughs... But, with oil going and hopefully staying lower, the price of plastics should follow... And how about the price of fuel, of diesel fuel, which hits their tissue and toilet paper margins pretty hard because of the distribution expenses needed to move truckloads of paper towels all across the country... KMB is expecting these costs to increase an additional $200 million... The company expects it will be spending an extra $100 million on natural gas annually... This is mostly to fuel tissue dryers in bathrooms... And even though half its natural gas costs are hedged, I think KMB is at last simply underestimating the extent to which happier days could be here again, thanks to lower oil and gas... Because, not noticing high oil and gas wrecked this company's last quarter... Now, over the next few weeks KMB is planning to implement its second price increase this year across most of its US consumer brands... This is a 3% increase this time, compared to the 1 or 2% that has been put before... KMB has a juicy 4.1% dividend yield so the company is paying for you to wait for happier days to arrive...

I think this could be the next Colgate... Remember, Colgate was hated, and then it went up $5 because it under promised and then over delivered like I think Kimberly-Clark Corp. (KMB) can.

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The Bottom Line!:    I think happier days could be here again with oil and natural gas prices going down lower and lower and lower... Hey, it would be like a Prozac, Zoloft, Efexer, Lextor, Symbalta cocktail of anti-stock depressants for a company with greatest brand name...
The company is Kimberly-Clark Corp. (KMB).