EI DuPont de Nemours and Company
DuPont is one of the premier chemical companies in the United States and a key player in the paint industry. This Delaware-based conglomerate is a $48 billion company, and it is the 4th largest paint brand in the world. Trading at $51 per share, the stock has a 52-week range of $37.10 to $57.50, and its one-year target estimate has been set as high as $60. DuPont also pays a very solid dividend of $1.64, for a yield of 3.3%. After an up and down 2011, its price has been climbing, gaining nearly 15% since January 1st.
With the housing market continuing to struggle, DuPont and many of its competitors should see continued demand in the year ahead. Although its price to book ratio of 5.6 suggests the stock is severely overvalued, its anticipated climb in share price and its dividend make it an excellent stock to hold long-term. Other investors apparently feel the same, as only 1.3% of the company’s float is held in short shares. Although it still appears to be about a year away, its positive earnings and a 14% jump in quarterly revenue are enough for me to recommend holding the stock and considering a new position on a pullback.
Dow Chemical Company
Another long-term member of the paint industry, Midland, Michigan’s Dow Chemical company is $40 billion heavyweight in the business sector and is recognized as a highly sustainable company for its business practices. Currently trading at $35 per share, the company has one-year target of around $37 and a 52-week of $ 20.61 to $42.23, while it pays a nice $1.00 dividend that produces a 3% yield. Dow’s share price has been climbing steadily since October, and it is trading more than 10% above its 200-day moving average.
Last year was a tough one for the company; although it managed a quarterly revenue increase of 2.4%, its earnings were down nearly 88%, and its share price dropped almost 6%. That said, things appear ready to turn around for Dow. The company’s forward price to earnings ratio stands at a very good 10.17, and its debt to equity ratio is a manageable 92.16. Very little of Dow’s float is held in short shares (1.9%) and its payout ratio is a solid 44%, suggesting that the investors are comfortable with the company and its position. I believe that this will be a recovery year for Dow Chemical, and investors should consider taking a position early to profit when it makes a move.
PPG Industries Inc
If you are looking for a paint company that isn’t going to fade over time, PPG Industries Inc is a perfect example. The company has paid continuous dividends since 1899, handing out $2.28 annually for a 2.5% yield. In addition, the stock is currently trading at $92 per share, with a one-year range of $66.43 to $97.81. Forecast to reach $97.25 in the next 12 months, the stock is coming off a solid 6% gain in price in the past year.
Not only has PPG been paying dividends, it has been increasing them. On average, the company has increased its dividend every 10 months for the past nine years, while keeping its payout ratio at a comfortable 33%. In addition to its dividend, the company had a solid growth year, increasing its revenue by 4.1% while pushing its earnings up by 5.4%. This S&P Dividend Aristocrat is a great investment not only for its yield, but also for its steady growth. This is a very good stock to hold.
Sherwin-Williams is in the same boat as Dow Chemical. The 146-year old company is a solid company that appears to be about ready to return to prominence. The $10.4 billion company has weathered a difficult 2011, where its earnings dropped 80%, but its numbers seem to suggest better things are coming. Currently trading near $100 per share, the company has a 52-week range of $69.47 - $100.46 and a target estimate of around $105.50. The company is a dividend payer, raising its dividend $0.1 to $1.56, for a yield of 1.5%. The company has raised its dividend 33 straight years.
Although an 80% drop in earnings is not a good stat, Sherwin-Williams has some very nice numbers. Quarterly revenue climbed over 9 percent last year, and its stock price climbed 20%. It is trading almost 18% higher than its 200-day moving average, and its price to earnings ratio is a manageable 15. Although the company needs to see some gains this year, I think this could be a very good stock to hold in 2013.
Minneapolis, MN-based Valspar Corporation not only produces paints, it also manufactures coatings for furniture, appliances and construction equipment. Trading for close to $46 per share, the company recently announced that it beat earnings per share estimates while recording a quarterly revenue growth of 19%. The company has a one-year target estimate of $48, and it pays a dividend of $0.80 for a yield of 1.7%.
Aggressively looking to expand, Valspar explored a purchase of DuPont Co for $3 billion. Although it did not reach a deal to purchase its competitor, the move shows the company’s determination. Valspar has been solid performer, and with only 1.8% of its float held in short shares, it looks like investors are comfortable with its long-term prospects. Since there are better performers in the sector, I am neutral on Valspar, but investors should watch to see how the company reacts to its earnings report. If it can gain momentum, this could become a very good purchase.
Painting a Pretty Picture
The coatings industry has a lot of potential, and I think things are going to improve this year. While I like PPG Industries Inc the best of the group because of its growth potential and dividend, EI DuPont de Nemours and Company, Dow Chemical Company, Sherwin-Williams Company and Valspar Corporation all look to be purchase opportunities in the near future.
About the author:I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.
I fundamentally analyze every business from the top down.
In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.