Colgate-Palmolive Company (NYSE:CL) shares are down more than -15.40% this year and recently decreased -1.91% or -$1.24 to settle at $63.83. Occidental Petroleum Corporation (NYSE:OXY), on the other hand, is up 5.78% year to date as of 10/10/2018. It currently trades at $77.92 and has returned -5.49% during the past week.
Colgate-Palmolive Company (NYSE:CL) and Occidental Petroleum Corporation (NYSE:OXY) are the two most active stocks in the Personal Products industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.Growth
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CL to grow earnings at a 6.37% annual rate over the next 5 years. Comparatively, OXY is expected to grow at a 68.53% annual rate. All else equal, OXY’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 45.81% for Occidental Petroleum Corporation (OXY). CL’s ROI is 39.10% while OXY has a ROI of 2.20%. The interpretation is that CL’s business generates a higher return on investment than OXY’s.Cash Flow
Earnings don’t always accurately reflect the amount of cash that a company brings in. On a percent-of-sales basis, CL’s free cash flow was 1.12% while OXY converted 0% of its revenues into cash flow. This means that, for a given level of sales, CL is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. CL has a current ratio of 1.10 compared to 1.40 for OXY. This means that OXY can more easily cover its most immediate liabilities over the next twelve months.Valuation
CL trades at a forward P/E of 19.83, and a P/S of 3.53, compared to a forward P/E of 13.59, a P/B of 2.85, and a P/S of 4.12 for OXY. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. CL is currently priced at a -7.43% to its one-year price target of 68.95. Comparatively, OXY is -19.14% relative to its price target of 96.36. This suggests that OXY is the better investment over the next year.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. CL has a beta of 0.67 and OXY’s beta is 0.61. OXY’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CL has a short ratio of 3.13 compared to a short interest of 1.81 for OXY. This implies that the market is currently less bearish on the outlook for OXY.Summary
Occidental Petroleum Corporation (NYSE:OXY) beats Colgate-Palmolive Company (NYSE:CL) on a total of 9 of the 14 factors compared between the two stocks. OXY generates a higher return on investment, is more profitable, higher liquidity and has lower financial risk. OXY is more undervalued relative to its price target. Finally, OXY has better sentiment signals based on short interest.