The Clorox Company (CLX): Capitalizing on Volatility to Sell and Repurchase at New Lows

Palm Valley Capital Management, an investment management firm, has issued the third-quarter 2026 investor letter for the "Palm Valley Capital Fund." The letter can be downloaded here. During the quarter, the Palm Valley Capital Fund gained 1.61%, while the S&P SmallCap 600 Index fell 7.93% and the Morningstar Small Cap Total Return Index decreased by 5.60%. As of this period, 75.5% of the Fund's assets were in Treasury bills, and equity-only performance was 4.8%. In the quarter, small caps underperformed large caps, with the S&P 500 nearing its highs. High volatility in stocks during a rising market is similar to that of the tech bubble. Current trends show a preference for protecting present wealth over ensuring future prosperity, causing wealth redistribution through rising asset prices, resulting in societal disparities. The federal debt exceeding $40 trillion exemplifies this issue, with resources consumed today leading to future obligations. The situation raises critical questions about wealth distribution over time, rather than simply the current disparity between the rich and the poor. Also, check the fund's top five holdings to see its best picks in 2026.

In its third-quarter 2026 investor letter, Palm Valley Capital Fund highlighted The Clorox Company (NYSE:CLX), a position the fund sold and re-initiated during the quarter. The Clorox Company (NYSE:CLX) is a global manufacturer of consumer and professional products operating through its Health and Wellness, Household, Lifestyle, and International segments. On October 02, 2026, The Clorox Company (NYSE:CLX) closed at $80.41, with a $9.72 billion market capitalization.The Clorox Company (NYSE:CLX) posted a ~20.25% YTD pullback, trading within a 52-week range of $79.12 to $128.90.

Palm Valley Capital Fund stated the following regarding The Clorox Company (NYSE:CLX) in its Q3 2026 investor letter

"The Clorox Company (NYSE:CLX) was sold and repurchased during the quarter. When we first acquired the stock, it rose to our valuation shortly after we bought it, so we sold. Clorox then fell to a new low later in the quarter. When Clorox reported results in August, they reflected comparison challenges due to customers accelerating purchases ahead of an ERP implementation a year ago. However, we attribute the stock's decline more to overall weakness in the consumer space than company-specific news.

The Consumer Staples sector represents the smallest proportion of the stock market (Russell 3000) going back at least three decades. It's probably a record low. We acknowledge the headwinds facing the sector, which include pressured consumers, cost inflation, and GLP-1 driven demand reductions in the case of food companies. However, despite the decline in the relative importance of the sector, current median Consumer Staples valuations are still above most periods over the last 30 years. For every Ingredion (P/E 10x) or Smithfield Foods (7x) there's a Walmart (38x), WD-40 (30x), or Casey's General Stores (29x). Our challenge has been to find those companies that appear cheap on normalized earnings and have acceptable financial leverage. Clorox's leverage metrics are on the upper end of our tolerance level, so we have sized the position appropriately. Free cash flow is largely directed to paying a dividend that is currently yielding 6.2%. The firm's brand strength supports its borrowing capacity."

The Clorox Company (NYSE:CLX) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held The Clorox Company (NYSE:CLX) at the end of the second quarter, which was 44 in the previous quarter. While we acknowledge the potential of The Clorox Company (NYSE:CLX) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered The Clorox Company (NYSE:CLX) and noted that its household brands provide a strong economic moat, but its latest results show the company remains vulnerable to weaker demand, rising costs, and margin pressure. Palm Valley Capital Fund added The Clorox Company (NYSE:CLX) in the previous quarter amid temporary disruptions. In addition, please check out our hedge fund investor letters Q3 2026 page for more investor letters from hedge funds and other leading investors.

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This article is originally published at Insider Monkey.