Clean Up or Wash Out?

Lawrance is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I simply couldn't take it anymore.

The aging washing machine that conveyed when I bought my house a few years back stalled mid-cycle once again, so down I went to the local big box store to check out a replacement.

Units of many sizes, shapes, capacities, and price-points were on display, but, in the end, I opted for a mid-range washer from Whirlpool (NYSE: WHR)

As an investor, I have to admit that I have weak spot for Whirlpool. I've found it to be a great trading stock, as it tends to have dramatic ups and downs in price over relatively short periods, often once or twice a year. So, standing there, trying to decide among top load, front load, dial or digital, I decided to give the company's stock, in addition to its products, a fresh look.

A Stock That's Cooking

Whirlpool boasts many strengths. It is, bar none, the global leader in major consumer appliances, manufacturing so many things needed to cook, clean and cool. The company, with a worldwide reach, certainly will benefit as millions of the world's poor claw their way into the middle class. In addition, any economic recovery in the United States or abroad bodes well for the company's prospects going forward.

And Whirlpool, while having healthy competition for your appliance-buying dollars, has few true competitors for your appliance-investment dollars.

Like my parents did, many people swear by Kenmore appliances, the signature brand of Sears Holdings (NASDAQ: SHLD). Sears, however, is primarily a retailer -- or even a real estate company -- not an appliance manufacturer.

Likewise, Spectrum Brands Holdings (NYSE: SPB) offers names like Farberware and Black & Decker, but most of its revenue derives from a variety pack of other products like batteries, animal food and herbicides. Therefore, I don't consider the stock a possible alternative to Whirlpool in the appliance space.

The closest competitor may be Electrolux (NASDAQOTH: ELUXY), the Swedish company that is the world's number-two major appliance manufacturer, behind Whirlpool. Unfortunately, in the United States, Electrolux trades thinly and only on the over-the-counter market, eliminating it from my universe of investment ideas.

The Stock Already Rises

As I did my research, I found that Whirlpool's many strengths seemed to be baked into its price already. As the chart below indicates, the stock has doubled from year-ago levels, now fetching about $100 a share. Heck, it was only six months ago that shares were trading in the mid-50s.


<img src="/media/images/user_14829/whirlpoolchart5_large.GIF" />

The stock's rapid ascent seems to have caused several insiders to lighten up.

Ever since the stock price crossed into the mid-90s, company executives have taken profits. The stock soared following a nice Oct. 23 earnings report and some sell-side analyst upgrades, leading four insiders to sell, combined, well over 100,000 shares over the following two weeks.

I simply can't ignore insider selling of such magnitude, which I consider a red flag. If I owned the stock today, especially if I had been lucky enough to ride it up, I would sell at least half my position and place a stop-loss order somewhere in the mid-90s to protect the rest of my profit.

The Stock Could Cook Again

I would love to own Whirlpool again, as I believe that global trends favor it long-term, and its market dominance is impressive indeed. Over the years, it has gobbled up so many of its competitors, such as Maytag and KitchenAid, that consumers today buy Whirlpool products often without even knowing it. Moreover, with a trailing P/E of 16.5 and a forward P/E of about 11, the stock does not appear expensive.

However, I can't push aside the insider selling or my past experience with the stock, knowing it historically has had dramatic pullbacks after periods of outperformance. Those pullbacks often have been followed by consolidations and, with time, another break to the upside. Therefore, I've found it wise to take profits while the profits are there, then await another downturn.

To me, patience is a virtue with Whirlpool. I think it's time for me to sit back, maybe get some laundry done with my new Whirlpool washing machine, and wait for a better entry point. 

lbinda has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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