The resurgent global economy following the coronavirus pandemic hit a wall on Monday. New fears regarding a possible COVID virus rebound tanked markets with the DJIA falling 2.09% and the S&P 500 dropping 1.59%.
But as they say on Wall Street – “buy the rumor, sell the news.” In other words, fear of a COVID outbreak isn’t the same thing as news of an outbreak. And that means discounted stock prices all around.
For one company, strong global economic growth and a proven track record of beating the averages gives investors a sure-fire success over the long term.
A Best-in-Class Materials Company and Growth Superstar
The Sherwin-Williams Company (SHW) is a $74.2 billion specialty chemicals and basic materials company specializing in paints and coatings. The company has operations in more than 120 countries, primarily located in North America, South America, and Europe.
The company reported a stellar first-quarter earnings beat of $2.06 per share compared to the analysts’ consensus of $1.65 per share.
After a 3:1 stock split and revised earnings estimates higher, expectations for the stock have been rising. All eyes will be on the company’s upcoming June 27 earnings report, although traders should expect more upside surprises.
The stock has a strong track record of consistently beating market averages. In the past 10 years, calculating for dividends reinvested, shareholders of SHW have seen a return of nearly 1000% – significantly higher than the 300% average from the S&P 500 index. And with U.S. home sales skyrocketing, the demand for paint and coating products is healthier than ever.
The stock was upgraded by BofA Securities earlier this month from a “neutral” recommendation to “buy” and given a price target of $325 per share.
The Underlying Fundamentals
The stock trades at 31 times earnings coming in slightly underneath the paints and coatings industry average of 36 times earnings. SHW also comes with a high estimated EPS growth rate of about 20%, giving it a PEG ratio of less than 2. This ratio is a sign that the stock may be trading at undervalued prices.
In addition, the stock carries a small 0.78% dividend yield, offering investors some minor downside protection against sustained downturns.
The Overlying Technical
Looking at Sherwin-Williams’ chart, investors can make out a clear climbing pattern beginning in early March.
Right now, the 20-day SMA is trending below the 50-day SMA, but the gap is closing quickly There is also a considerable amount of stock buying activity, as indicated by the high RSI of 63.
While it’s possible the stock is nearing overbought territory, it is likely that this simply reflects the bullish solid activity investors are seeing.
The Bottom Line
Based on Sherwin-Williams’ full-year EPS estimates, this stock should be fairly valued at around $315 per share – a gain of nearly 12% from its current trading price range.
Investors looking for a growth stock play that can weather any temporary market setbacks will want to consider this winner for their portfolio.
The above analysis of The Sherwin-Williams Company (SHW) was provided by financial writer Daniel Cross.
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