Please get out and vote today - your vote counts!!! 

In addition to figuring out who to vote for in my new home state of North Carolina, I have had the pleasure of making some renovations to our new home. I’ve especially enjoyed painting our daughter’s room. I went to faithful Sherwin-Williams to get our paint supplies and it reminded me of how many other people visit their local Sherwin-Williams to get what they need. As such, let’s look at this company as a stock investment company, and thus it’s public stock. 

First, you should know that Sherwin-Williams manufactures and sells paints, coatings, and related products to professional, industrial, commercial and retail customers through three segments: the Americas Group, the Consumer Brands Group, and the Performance Coatings Group. 
The stock (SHW) is considered a cyclical stock, which is a stock whose underlying business generally follows the economic cycle of expansion and recession. Cyclical businesses “perform well during economic expansions but typically experience significantly declining sales and profits during recessions and other challenging economic times.” Check out SHW’s stock performance over the past 20 years. Over this time, the trend is upward and has been quite the performer over the long term.

But, as the economy contracts, so goes the Sherwin-Williams share price, as evidenced in the past year. You should realize that the home improvement industry, which includes Sherwin-Williams, faced a tailwind from the hot housing market, low-interest rates, and other record fiscal stimulus during the beginning of the pandemic. Wasn’t everyone undergoing a home project? SHW’s performance depends heavily on housing starts, DIY construction, auto production, government spending, and infrastructure development.

Maybe in this environment of recession discussions and a depressed stock price, SHW looks like an investment opportunity? 

After reading SHW’s recent third quarter 2022 earnings release, I wanted to call out several factors that I think are important in evaluating an opportunity with SHW. That said, these factors could be applied to other companies in the space too:  

Belief in Company’s Long-term Prospects. Companies and individuals will always need to paint houses and buildings. Over the long term, despite short-term macro issues, Sherwin’s business model is solid. I am encouraged by Sherwin-Williams statement that “the company’s long-term outlook remains bright. We will continue to invest in long-term growth initiatives, including stores, sales representatives, innovative products, and acquisitions that fit our strategy. We remain confident in our strategy, our capabilities and solutions, and most importantly, our people, who have demonstrated a consistent ability to execute and outperform the market regardless of the economic environment." I believe that the Sherwin-Williams management team has had a long track record of success. 

Customer Demand. Sherwin-Williams knows that interest rate hikes will, by design, slow U.S. demand. The management team of Sherwin-Williams, however, plans to take action to simplify its operating model and portfolio of products sold in its consumer segment and weigh various options to implement appropriate cost reduction plans due to the continued uncertain demand outlook. Consumers should also benefit because the trajectory of raw material costs is trending favorably as the year comes to a close. 

Cash flow is King. When companies generate strong cash flow, the good ones will return it to shareholders. You should always look for share buybacks as a signal, in part, that a company believes its stock is undervalued. Sherwin-Williams generated $1.28 billion in net operating cash during the first nine months of 2022. This cash generation, along with an increase in its short-term borrowings and long-term debt, allowed the company to return cash of approximately $1.21 billion to its shareholders in the form of dividends and share repurchases in the third quarter. On September 30, 2022, the Company had remaining authorization to purchase 45.8 million shares of its common stock through open market purchases.

What are your thoughts? Do you think the stock will decrease more significantly in the year to come? What other companies in the sector might be piquing your interest with this stock market downturn and looming recession?

A Wealthy Girl Corner

Wealth can be unleashed with the power of your vote! Please get out and vote today - your vote counts!!! I will have the pleasure of voting as a North Carolina resident for the first time.