Consider Sherwin-Williams, Because Paint Sales Will Rebound with Housing

Wall Street has started to notice the stock, but a considerable portion of the institutional investor community remains bearish, arguing that the U.S. housing sector's reduced size will weigh on paint results. The argument forwarded here is that the U.S. housing sector (as measured by both new and existing home sales) has bottomed, and so has SHW's profits. The First Call FY2010/FY2011 EPS estimates for SHW are $4.33 to $4.88.

Technically, Sherwin's stock chart is in an uptrend, punctuated with above-average volatility. One bad quarterly earnings report will cause a swoon, so if you're squeamish, don't buy SHW. Otherwise, the uptrend is the overriding theme, and there's scope for a run at an $80-85 price during this economic expansion.

2010 Outlook: I view Sherwin as a long-term play, but if investors are looking to sell SHW within the year, it's probably best to take your profits after it rises to $73-74, if it fails to rise above $75.

Stock Analysis: I consider Sherwin-Williams to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in SHW now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my SHW position before April 2010 and I'd put a sell/stop loss at: $37.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.