Time to Clean Up with Whirlpool
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At this point, even slightly good news is going to be a catalyst for stocks as we move into 2012. The economists and investors that think we need to see a complete economic turnaround before it’s safe to go back in the proverbial water are going to miss out, big time.
The latest news coming from the manufacturing sector -- that the demand for factory goods rose to its highest level in 4 months -- is a bullish sign. Now, not all the news was good. For example business investment doesn’t look particularly strong as the demand for computers lagged. But durable goods jumped 3.7%, right in line with expectations. Whenever these types of results come about, the first question on many investors minds is how do we take advantage of these trends?
Let’s start with durable goods, which are generally defined as items intended to last 3 years or more. These include things like washers, dryers and other home appliances. That got me digging, and lo and behold up pops Whirlpool (NYSE: WHR), the $3.7 billion appliance manufacturer.
Today investors are a little skittish with the announcement of some union problems, but that’s just icing on what was already a pretty tasty cake. The folks working at Whirlpool’s Fort Smith plant are not taking kindly to the company closing the operation in mid-2012. But unless this takes an unexpected turn for the worse, it’s hard to imagine significant long-term repercussions for WHR investors.
There’s also the uncertainty of losing the tax incentives associated with many appliances, which is partly to blame for the stock being down from 2010’s high of $118 a share. The global economic environment didn’t help this cylical stock either, as Whirlpool is well established in 12 different countries. But for even the modest value investor out there, this is like a godsend.
So What’s To Like?
The aforementioned uptick in durable goods orders for one thing. Add to that a slew of positive fundamentals and Whirlpool looks like a great, long-term holding. If estimates are correct, WHR should net about $1 billion in income for 2011 on revenue of just over $19 billion. Today’s P/E is a mere 10.64, but looking forward is when the company really jumps out, particularly for value investors. The company’s current $48.31 share price is a mere 7.8 times projected earnings; for a bellwether in the industry, that’s pretty darn nice.
Swedish-based Electrolux AB by comparison is trading at nearly 13 times earnings, though their 6%+ dividend may warrant the steep price for some.
Add to the above a strong asset/debt ratio and the confidence management showed by bumping the dividend this past summer; it currently stands at 4.14%, and Whirlpool could be a $100 stock before the year is out.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.