You can only own so many industrials, because they carry worldwide economic risk, execution risk, and sector risk. You portfolio cannot consist only of 3M (MMM), Honeywell (HON), Dow Chemical (DOW), United Technologies (UTX), and PPG Industries (PPG). I pick these stocks because they are regarded as deep-value industrials with terrific buybacks, growing dividends, and fantastic management teams. In the case of Dow, activist investor Dan Loeb disagrees with my view, despite the outperformance of the stock.
Consider what Chuck Bunch is doing as the CEO at PPG. He is manufacturing almost 100% value-added products: the dominant play in coatings.
I felt strongly for the company, after interviewing him about the prospects for PPG's Mexican acquisition, Comex. This deal has made his company the largest paint company in North America. This chain of 3,800 paint stores is going to be a huge profit driver in an already tight market, where prices are rising and raw costs are falling.
Chuck Bunch is almost unlike any other executives I have spoken with. He recognizes that Mexico might be the cheapest place on earth to manufacture things. The country's cheap labor, relatively loose environmental controls, and state-provided health care contribute to its attractiveness.
Mexico's economy is a growth economy that's the hub of on-shoring. A Mexican worker costs you well below the $7.50-per-hour that Chinese workers require.
The stock has had a terrific run off the worldwide slowdown and the Ebola scare from October. After talking to Bunch, I am confident that this company could exceed the $11.17 earnings-per-share estimates for next year. The stock deserves 20x multiple for its superior growth characteristics, huge buyback, terrific dividend and excellent management.
I pushed this stock hard in the $180s, when the company reported the quarter. The stock traded down immediately, before people realized that the macro environment was not bad, and was in fact improving. Many were worried about Europe, but North America is doing well, and Asia is still strong.
PPG's stock trades quite poorly. It offers a terrific opportunity during some extraneous selling program. I would consider buying it when that selling happens.