The building sector moved into the No. 1 spot among 33 sectors
in Wednesday's IBD, displacing food and beverage from the pole
Should a major index deliver a follow-through, confirming a
new uptrend is under way, building might be a better candidate
for leadership than the defensive food and beverage sector.
Many stocks in the building sector don't have the greatest
foundations for leadership, but IBD research shows that one of
every four big market winners are cyclical or turnaround
), the paint and coatings maker and seller, is an indirect play
on the housing industry. It's in the building sector, but it's
also a turnaround story.
The paint store group has been a strong performer of late.
The company's annual earnings dropped on a year-ago basis in
2008-09. In 2010-11, EPS grew a moderate 14% and 9%,
respectively. However, the Street expects earnings to pop 31%
Quarterly earnings have shown accelerating growth in some of
the recent quarters: 7%, 18%, 51% and 31% in the second
In Q2, after-tax margin was 8.9% -- the best in at least 18
quarters. Pretax margin, though, hasn't fully recovered to the
2006-07 levels. It was 8.6% last year, down for a fourth straight
Part of the pressure on margins comes from raw material costs
and part from currency exchange.
In the first six months of this year, same-store sales
increased 16.6%. (Overall company sales rose 12% in the first six
Currency factors dented sales 3.9% in the first half of this
Return on equity, a measure of financial efficiency, was 33.5%
last year, the best in at least nine years.
Sherwin-Williams has increased its dividend every year since
1979. The payout has more than doubled since 2004. The annualized
yield is 1.2%.
Operating cash flow per share was $6.78 last year. With the
dividend only 23% of the cash flow, the company is
well-positioned to continue the dividend increases.
In the first six months of this year, the number of funds
holding its shares rose from 850 to 900.