Face-Off on Stocks: Springtime Picks and Pans [Video]
Sherwin-Williams (SHW) is the biggest paint and coatings company in the U.S. and one of the largest in the world. The downturn in the housing and construction markets weighed on its shares during the worst of the recession, but they held up much better than the broader market and -- better yet -- have since come roaring back.
The stock is up 25% in the past 52 weeks, beating the S&P 500 ($INX) by 9 percentage points. However, the shares are down for the year-to-date and the relative valuation could be more compelling. Shares currently fetch a premium to their own five-year average on a trailing earnings basis, according to data from Thomson Reuters, and are at fair value by forward earnings. There's also the concern that rising oil and other raw materials costs could pressure margins in the quarters ahead.
Toro's Stock is Up 30% Over the Past Year
Toro (TTC) is well-known for its seemingly ubiquitous lawn mowers but the company is also a major player in commercial landscaping and irrigation systems for vast expanses of green. (Think ball parks and golf courses.) On the plus side, the stock is up more than 30% in the last year, sports a dividend yield of nearly 2% and enjoys a high-quality return on equity of nearly 35%.
On the downside, the relative valuation is looking a bit stretched, seeing as the stock trades at pretty significant premiums to its own five-year average on both a trailing and forward earnings basis, according to Thomson Reuters data. Furthermore, the company could be facing higher input costs as commodity prices continue to soar. Whether the company can grow into its valuation during the spring selling season remains to be seen.
Home Depot Intends to Raise Dividend Every Year
Home Depot (HD), a component of the Dow Jones Industrial Average ($INDU), appears to have put the worst of the downturns in housing and construction behind. After six quarters of recovery following years of sales declines and margin pressure, the nation's biggest home improvement retailer looks positioned for continued modest sales growth and operating margin expansion.
The stock's up about 18% in the last 52 weeks, besting the broader market by just two percentage points and the relative valuation looks mixed. Shares trade at a premium to their own five-year average by trailing earnings but offer a slight discount when looking at forward earnings. On the other hand, the cash flow story appears compelling. The dividend yields 2.7% and management is committed to keeping the payouts coming. Home Depot intends to raise its dividend every year with a long-term payout ratio targeted at 40%.
For the bull and bear cases on Sherwin-Williams, Toro and Home Depot, see Face-Off on Stocks above.