If you travelled to your local supermarket or flicked between news channels this week then you will know exactly what I am about to stay.
We are experiencing a toilet paper epidemic as the shelves are stripped bare. Supermarkets are scrambling to keep up with the demand. For example, Cosco sold 192,000 toilet paper rolls in half an hour. Yes, that is correct 192,000. Local shoppers are capturing both the unprecedented demand and the emptiness on shelves on Twitter, Facebook and Instagram.
Why? It is the question on everyone’s mind. While everyone is frowning upon toilet paper roll hoarders, I can see some logic. It is best to control what you can in times of crisis to mitigate the risk of what you cannot control impacting your life. Here shoppers are worried about what they can control, consumption.
Also, there is no substitute for toilet paper. Thus, if one shopper stocks up everyone else must stock up. In saying that, being responsible about how many you purchase is critical to ensure the toilet paper crisis does not continue to grow at an exponential rate.
Today we are discussing some possible bullish toilet paper stocks for next week and the realities behind investing in Toilet paper stocks.
Asaleo Care (ASX: AHY)
Asaleo Care surged by 16% during the week. AHY is one of Australia’s leading personal care companies that manufacturers, distributes and sells hygiene products.
You might not have heard of Asaleo Care, but you would know some of the brands they sell. AHY’s portfolio includes Libra, TENA, Tork, Sorbent, Handee Ultra and Deeko to name a few. With such a well-known portfolio of personal care brands, it is no surprise investors are rallying behind AHY.
AHY’s trading volume experienced an explosive increase from 352,361 (Monday 2nd March) to 1,152,037 (Friday 6th March). Thus, if the toilet paper shortage continues over the weekend, AHY will need to manufacture more products, likely leading to more share price growth.
However, AHY dropped 3.54% today. Personally, I believe the decrease represented short term investors, who got in at the start of the week, cashing out. Also, the drop could possibly provide buyers with an entry point on Monday morning.
Moreover, despite toilet paper being limited at physical storefronts Coles and Woolworths are increasing online orders to accommodate for families in need. Meaning sales are likely to remain high during the upcoming weeks.
Kimberely-Clark Corporation (NYSE: KMB)
Now we look at the New York Stock Exchange with KMB experiencing a 17% increase during the week. Like Asaleo, Kimberely-Clark might not be a household name but the brands they sell are. KMB’s toilet paper brands include Viva, Kleenex, Scott, and Andrex to name a few.
KMB’s consumer tissue segment only increased sales by 3% (2018-2019). However, the recent spike in demand for toilet paper is likely to drive up consumer tissue sales to record highs for Q3 2020.
Moreover, KMB owns and sells more brands than AHY. Meaning, the surge in toilet paper orders will likely benefit the New York Giant over the Australian stock.
However, KMB fell 1.31% yesterday. Like AHY, the drop might be short term investors cashing out. Tomorrow’s trading day will paint a clearer picture as to whether the rapid stock surge is over for KMB.
The Reality Behind Toilet Paper Stocks
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The recent demand for toilet paper creates a lucrative investment opportunity that could produce an eye-watering return. However, the risks must be assessed. Why? Because YIG believes in providing investors with a balanced perspective on stocks.
Investors are rallying behind KMB and AHY because of the expectation that the toilet paper epidemic will fuel a surge in sales. It’s the story that is driving up the stock price, not a positive fundamental change in the business. Meaning the likelihood of you investing, then everybody selling before you can and thus resulting in a capital loss is probable.
It is not different than investing in hand sanitiser stocks or companies developing a vaccine for the coronavirus. I am not advising for or against the investment in toilet paper stocks. Just simply acknowledging both sides of the investment decision.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG.