Rifling Through Some Big Household Names

 | Nov 17, 2012 | 12:30 PM EST
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So far in November, all sectors in the S&P 500 have recorded significant declines. Consumer discretionary firms in the index, however, have shown relative strength despite high levels of unemployment. This month, the sector is down 2.62%. That does not fall into the category of "good," but at least it is "less bad" than the others.

Appliance maker Whirlpool (WHR) is listed in the large-cap index as a consumer-discretionary company (and one could certainly make a practical argument to support that categorization). While the stock has been in retreat mode the past two weeks -- not exactly a surprise, given market conditions -- it continues to hold above its 10-week moving average.

Whirlpool is a bit frothy, however, having nearly doubled in price year to date. General market pullbacks offer buy opportunities, as stocks that get support above their 200-day lines become good watch list candidates.

So far, November is the first down month for Whirlpool shares since June. They are due for a pullback, and if the stock corrects for a few weeks or even months, that could set it up for a fresh rally.

Sherwin-Williams (SHW) is another S&P consumer-discretionary name with better-than-average technical performance. Its stock vaulted nearly 6% Monday on news that the company would acquire Mexican paint maker Comex for around $2.34 billion, including assumed debt. This will boost Sherwin-Williams' business not only south of the border, but also in the Western U.S. and Canada, where Comex has significant market share.

Even before that, Sherwin-Williams had been correcting in a fairly orderly fashion. On Oct. 26, it fell to an intraday low of $138.36, which was 4.8% below its 50-day average, but nearly 12% above its 200-day line. This retreat followed a somewhat astonishing 12 consecutive months of gains. I had known Sherwin-Williams had been a solid performer, but the stock's achievement here was stealthy: The shares quietly ran higher while the world's attention was focused on every tick of Apple (AAPL).

In any case, October's 4.3% decline was not any kind of surprise, given Sherwin-Williams' prior uptrend. Thus far in November, the stock is up about 4.4%. It continues to trade below its Oct. 5 high of $156.50. As with Whirlpool, a consolidation of a few weeks or months could be constructive, particularly as the general market remains weak. When a new rally takes shape  -- which will eventually happen, despite widespread pessimism at the moment -- the leaders will include many of the names that are now correcting along with the major indices.

Big-box home-improvement retailer Lowe's (LOW) is another name that's popped up on my scans of top-performing consumer-discretionary firms. More attention has been focused on rival and Dow component Home Depot (HD), which reported earnings Tuesday. This stock got a boost on that news, but it has pulled back in subsequent sessions, in tandem with the broader market.

Lowe's, like Home Depot, is holding above its 10-week average. The stock is up about 26% year to date, but has pulled back 1.2% for the month so far, closing Friday's session at $31.98. 

Right now, Home Depot is technically the stronger performer, and it is favored by analyst estimates. Wall Street is expecting the company to grow income to $3.03 per share, a 23% gain. In comparison, Lowe's is expected to earn $1.66 per share in 2013, down slightly from the $1.67 per share in 2012.

Of course, analyst estimates often prove wrong, either to the upside or downside, and stocks can show price rallies even while Wall Street expects an income decline. For now, both Lowe's and Home Depot show potential.

Be aware that Lowe's is scheduled to report its third quarter before the open Monday, and it is prudent to avoid taking a new position so close to earnings news. While you might miss a post-earnings pop, you may also sidestep a sizable drop. Even if a stock rallies on its report, traders with a short- or medium-term horizon can find an entry point on the next moving-average pullback, which generally follows within a few days or weeks.

Analysts expect Lowe's to deliver earnings of $0.35 per share on revenue of $11.91 billion. Those results would match those of the year-ago quarter.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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