I never in my wildest imagination thought I'd be writing about toilet paper stocks. But what's going on the U.S. right now certainly stretches the imagination.
If you're like millions of Americans, you've gone to your local grocery store only to find shelves empty or close to empty on the aisle that usually holds hundreds of rolls of toilet paper. The novel coronavirus pandemic has caused people to load up on necessities. And at least in the U.S., toilet paper definitely qualifies as a necessity.
As an investor and an investing writer, I'm always looking for trends that could point to great investing ideas. With so many frantically stocking up on toilet paper, should you also stock up on toilet paper stocks? It's a serious question that deserves a serious answer.
Image source: Getty Images.
Wipe one reason off the list
Let me first state right off the bat that buying toilet paper stocks only because of the current frenzy of buying toilet paper rolls isn't a good idea. There are two reasons why.
First, the mad rush to hoard toilet paper won't last very long. Based on what's happened throughout the country, I suspect that some people have enough TP to last them for months -- and maybe years. It would be a different story altogether if gastrointestinal issues were one of the major symptoms of the coronavirus disease COVID-19. That's not the case, though.
Second, you've probably heard the expression that money doesn't grow on trees. The idea behind the statement is that money (or substitute some other valuable item in its place) is a limited resource that isn't easily obtained. But toilet paper literally grows on trees. It won't be a limited resource once the current panic subsides.
Toilet paper is being manufactured just as it has in the past. Most of it is made right here in the good old USA. Based on the latest data I could find about toilet paper imports (yes, someone keeps up with this data), the U.S. imports less than 10% of its toilet paper. Don't worry about China threatening to cripple our economy by holding up shipments of toilet paper.
The top three of TP
So let's now get into the nitty-gritty of answering the pressing question of whether you should buy toilet paper stocks. The first thing we need to do is identify exactly what the top toilet paper stocks are.
The top-selling toilet paper brands in the U.S., according to Statista, are private label, Angel Soft, Charmin, Scott, Quilted Northern, and Kleenex Cottonelle. It seems like a pretty good bet that the top private-label toilet paper brand belongs to the top retailer in the U.S. -- Walmart (NYSE: WMT). And for what it's worth, Walmart's Great Value Ultra Strong toilet paper brand was the highest-ranked private-label TP by consumer product review website Reviewed.
Angel Soft and Quilted Northern are made by Georgia-Pacific, which is owned by Koch Industries. But Koch is a privately held company, so you won't be able to invest in it. Charmin, though, is sold by Procter & Gamble (NYSE: PG). Scott and Kleenex Cottonelle are made by Kimberly-Clark (NYSE: KMB).
Stacking them up
How do these these top three TP stocks stack up against each other? In terms of stock performance so far this year, all three are trouncing the S&P 500 index. Kimberly-Clark stands as the best performing of the three stocks, followed closely by Walmart and with P&G trailing a little behind.
As for valuation, Kimberly-Clark again leads the pack, with its shares trading at 19.8 times expected earnings. Walmart stock's forward price-to-earnings multiple stands at 22.4. P&G is the most expensive of the three stocks, with its shares trading at 22.8 times expected earnings.
All three toilet paper titans pay dividends. At the top of the stack is Kimberly-Clark, with its dividend currently yielding 3.5%. P&G's dividend yield is 2.93%. Walmart comes in third, with a dividend yield of 2.08%.
Growth prospects are important even with consumer staples stocks. Wall Street analysts project that P&G will be able to boost its average annual earnings by 8.3% over the next five years. Analysts expect that Walmart's earnings will increase by 5.95% per year on average during the same period. Meanwhile, the consensus is that Kimberly-Clark will grow its earnings by an average of 5.77% annually over the next five years.
Unrolling the answer
So should you buy toilet paper stocks right now? I'll say that if you did want to buy a TP stock, you probably wouldn't go wrong with any of the big three of TP. Kimberly-Clark's dividend and valuation could make it the most attractive option for some investors.
However, my personal view is that there are better stocks to buy than any of these three. During this coronavirus-fueled bear market, I think there are a lot of great growth stocks and dividend stocks you can buy right now and emerge as a winner over the long run.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
