Even if consumer goods specialists like Kimberly-Clark (NYSE:KMB) offer a sensible approach to the current questionable equities environment, they can’t seem to shake off the “boring” label. Frankly, the average retail investor bidding up KMB stock probably won’t strike it rich anytime soon. However, as a recession-resistant idea, Kimberly-Clark offers much practicality. Better yet, smart money appears to think the same. I am bullish on KMB.
One of the most well-known household brands, Kimberly-Clark attracts the most attention for its personal care products. Its flagship product is Cottonelle, a popular brand of toilet paper. As well, Kimberly-Clark owns the Huggies line of baby diapers. While these products represent the backbone of basic needs, they also lack emotional catalysts.
Outside of the pandemic-fueled supply-chain shortages of toilet paper, not too many folks are barreling down their local grocers for Kimberly-Clark items. However, investors should pay close attention to KMB stock. It may very well represent the true economic barometer.
Currently, one of the most pressing issues dominating the business news cycle centers on inflation. Although the Federal Reserve committed to attacking higher prices by raising the benchmark interest rate, inflation remains stubbornly elevated. As well, the struggle between hawkish monetary policies and escalating consumer prices vex international central banks.
Fundamentally, then, it’s more than possible that the U.S. economy may slip into a recession next year. If so, growth-oriented names would likely struggle. However, KMB stock may largely receive an exemption because of the underlying company’s inelastic demand profile. In other words, irrespective of market fluctuations, people will still need to take care of themselves.
Even more enticing, the smart money appears to target KMB stock.
Interestingly, on TipRanks, KMB stock has an 8 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
KMB Stock and Rising Demand from Hedge Funds
One of the consequences of investing in the post-pandemic new normal centers on the meme-stock phenomenon. Suddenly, retail traders received their information through various public forums, pitting their wits against major Wall Street institutions. While this tactic worked (fabulously) temporarily, over the long run, it’s better to trust the smart money.
For KMB stock, the smart money arrives in the form of hedge funds. While they might have been bruised during the height of the meme-stock craze, these firms represent market professionals. They’ve been doing this for a long time. On average, then, their collective advice rates highly compared to random voices on the internet.
Notably, since September 30, 2021, hedge funds gradually increased their position in KMB stock. Per TipRanks, hedge fund holdings at the end of the third quarter last year numbered 827,819. By Q3 of this year, the holdings count hit 1,387,879 – an expansion of nearly 68%.
To be fair, Wall Street analysts peg KMB stock as a Hold. Moreover, these experts’ collective forecast anticipates that (from the time of writing), KMB may fall over 10%. Admittedly, this narrative doesn’t offer much in the way of confidence.
Nevertheless, this circumstance may represent a case where analysts may be suffering from near-term bias. Since the start of this year, KMB stock has declined by over 2%. As a supposedly safe and boring market idea, the red ink imposes much disappointment.
Still, analysts primarily offer guidance. On the other hand, hedge funds must put their money where their mouth is, and in this particular case, they’re putting their money into KMB stock. Just on this basis alone, Kimberly-Clark deserves closer inspection.
What is the Price Target for KMB Stock?
Turning to Wall Street, KMB stock has a Hold consensus rating based on two Buys, eight Holds, and two Sell ratings. The average KMB price target is $125.08, implying 10.2% downside potential.
Kimberly-Clark is Better Suited for Economic Realities
Although no publicly-traded company may benefit unscathed if a recession materializes, some enterprises are better suited than others. Kimberly-Clark ranks among the favorable.
Moving forward, the harsh reality may very well be that the Fed will aggressively raise interest rates next year. That’s because the November jobs report came in much hotter than anticipated. Under ordinary circumstances, nations would love nothing more than a robust labor market. However, this dynamic implies that more dollars continue to chase after fewer goods.
Naturally, the Fed wants the opposite circumstance to ring true: fewer dollars chasing after more goods. To get to this point, it must reduce liquidity in the system. That’s deflationary, which might benefit KMB stock as opposed to, say, growth-oriented investments.
Further, Kimberly-Clark’s financial profile suggests it’s much better suited for an economic downturn than other businesses. While it’s not a growth machine, the company delivers on the profitability front. For instance, its net margin pings at 8.84%, ranked higher than over 76% of the industry.
In addition, Kimberly-Clark represents a high-quality business. Currently, its return on equity ranks higher than nearly 99% of sector peers. Also, its return on assets stands at just under 10%, beating out almost 84% of its rivals.
Finally, Kimberly-Clark brings a decent dividend to the table with a forward yield of 3.3%. Additionally, the company features 50 years of consecutive dividend increases, a status management won’t give up without a fight. Thus, it’s no surprise that hedge funds appreciate KMB stock. Ahead of questionable economic dynamics, it just makes more sense.
