The shares of paint-supplier supreme Sherwin-Williams (SHW), first written about here on June 12, 2009, at a price of $55.10, have pulled back slightly, to about $82, but the dip looks like a healthy correction following an impressive 2010 rise.
Even so, if you haven't already, now may be a good time to consider taking some profits, if you're in near $55.
Those investors who can tolerate the risk can retain their full position, but keep in mind that top-side gains probably will be limited to the $100-level during this economic expansion.
Further, fundamentally, totally unsexy Sherwin-Williams remains fine, just a little overvalued at this juncture. Sherwin will probably post a 6% to 8% revenue increase in 2011, after a 9.4% jump in 2010.
Also, do-it-yourself sales should record another adequate gain in 2011; however, the sluggish (at best) recovery in the U.S. new and existing home sector and commercial real estate sector will continue to weigh on the top line.
Gross margins will likely remain flat, as some pricing power is offset by higher raw material costs.
Sherwin's trajectory will hinge on the U.S. housing market's recovery. A gradual improvement in home sales will keep revenue rising; conversely, a homes sales retrenchment would likely lead to flattish 2011 results.
The Thomson Reuters First Call FY2011/FY2012 EPS estimates for SHW are $5.03 to $5.90.
Technically, as noted, Sherwin's stock zoomed above $85 from $65 last autumn -- that's a bit much for a 3-month period, hence the recent correction. Further, the progress to $100 is not likely to be nearly as easy.
2011 Outlook: I view Sherwin as a long-term play, but if you're looking to sell SHW within the year, it's probably best to take your profits after it rises to $92 to $94, if it fails to rise above $95.
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; I'd put a sell/stop loss at $67.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.