Colgate-Palmolive: A Defensive Gem in a Slowing Economy?

In an era of economic uncertainty, Jim Cramer’s analogy of Colgate-Palmolive (CL) as “Toothpaste + Candy = A Must-Own in a Slowdown!” has sparked debate among investors. The “toothpaste” represents the company’s essential, everyday products, while the “candy” symbolizes its premium, growth-oriented lines. But does this duality justify Cramer’s bullish stance, or are there hidden risks lurking beneath the surface? Let’s dissect the data.

The Defensive Edge: Why “Toothpaste” Matters

Colgate’s core products—oral care, personal hygiene, and household cleaning—are classic defensive stocks. Unlike discretionary items, these goods remain in demand even during recessions. Cramer emphasized this resilience in his February 2025 Mad Money episode, noting that Colgate’s brands (Colgate, Ajax, Tom’s of Maine) enjoy 90%+ penetration in key markets, making them indispensable.

Yet Cramer’s skepticism about Colgate’s recent performance complicates the narrative. He highlighted a 3% decline in Q3 2025 organic sales in emerging markets due to currency headwinds and price sensitivity. To counter this, Colgate has focused on sustainability initiatives, such as its goal to achieve 100% recyclable packaging by 2030—a “smart long-term play” to align with regulatory trends and evolving consumer preferences.

The “Candy” Factor: Premium Growth and Strategic Shifts

The “candy” in Cramer’s analogy refers to Colgate’s push into premium and niche markets. The company reported double-digit growth in its high-margin, advanced-formulation toothpaste lines (e.g., Optic White, Gum Health) in 2025. This strategy mirrors moves by luxury brands to cater to consumers willing to pay more for perceived quality.

However, Cramer warned that success hinges on navigating macroeconomic headwinds. For instance, he cited tariff pressures forcing companies like Colgate to choose between price hikes (risking lost sales) or cost cuts (eroding margins). Colgate’s response—securing long-term raw material contracts and optimizing supply chains—has stabilized production costs, but gross margins remain under pressure.

The Elephant in the Room: Tariffs, Dividends, and Hedge Fund Sentiment

Cramer’s caution extends to broader risks. He noted that 54 hedge funds held Colgate shares as of Q3 2024, signaling institutional interest. Yet his Q1 2025 rankings placed CL at 5th or 6th among stocks he discussed, reflecting lukewarm enthusiasm compared to AI-driven peers.

On dividends, Colgate’s 5% yield is generous, but Cramer stressed that future hikes depend on margin improvements—a tall order given “no fat left to trim” in costs. Meanwhile, the company’s reliance on emerging markets exposes it to currency volatility, as seen in Southeast Asia’s recent economic slowdown.

Conclusion: A Hold, Not a Buy—Yet

Cramer’s “must-own” tagline is catchy, but the data paints a nuanced picture. Colgate’s defensive moat and premium growth initiatives position it well for a slowdown, but near-term risks—tariffs, margin pressures, and emerging market volatility—limit its upside.

Key Takeaways:
- Dividend Stability: The 5% yield offers a cushion, but growth is stagnant.
- Sustainability Push: Its 2030 recyclable packaging goal aligns with ESG trends, potentially boosting long-term appeal.
- Valuation: At a P/E of 22x (vs. industry average 25x), it’s fairly priced but lacks catalysts for rapid growth.

Cramer’s “hold” rating in early 2025 seems prudent. Investors seeking a defensive play might consider Colgate for its stability, but those chasing growth should look elsewhere. As Cramer himself quipped, “It’s a company that’s here to stay, but don’t expect miracles in the next 12 months.”

In a market obsessed with speed, Colgate remains a slow-and-steady bet—one worth holding but not overextending for.