You want strength? How about the strength of Sherwin-Williams (SHW) and Whirlpool (WHR)?
As is so often the case with this market, both of these household names, which are, alas, household stocks, reported headline misses, one, Sherwin-Williams, in a pre-release, the other, Whirlpool, in an investor day summary.
If you just looked at the first paragraphs of the releases and then the headlines that appeared in the wires you would have shorted these two stocks nine ways to Sunday. There was nothing good.
But then you read the reasons why the numbers came out as they did and you were darned excited with the prospects. So the stocks instantly rebounded and have since come all the way back and then some.
These declines and rebounds are part and parcel of what makes this market so strong.
First of all we do not have a strong housing market. That means you almost always get a subpar top line vs. the blow out you are truly expecting given the runs in the stocks.
But second, the profitability of these two businesses has dramatically increased. The merger activity in both groups has been staggering. The appliance dumping from Korea has become much more muted. The raw costs have gone from being headwinds to tailwinds.
It's all pretty amazing.
Yet the hedge funds don't believe. These two are both whipping boys for the shorts, but the shorts have come up short betting against both.
Sherwin-Williams, in particular, is a fantastic story. First, the chief raw cost of paint is oil. Do you think that any paint company is going to cut its prices now?
The competition used to be fierce. But there are only a small number of players now and they tend not to compete on price. We know that the appliance business has rationalized, too, with General Electric (GE) selling its appliances business to Electrolux (ELUXY).
Why don't the shorts understand this? Because these two are what I call "football stocks," an old retail term meaning that their prices are kicked all over the place. These stocks had been tremendous disappointers over so many years that the hedge funds presume it's a matter of time before they disappoint. But they haven't. And they aren't about to.
Which is why, next time they swoon remember to buy, not sell. They are changed companies in a changed industry and if housing starts ever revert to pre-Great Recession levels, you are going to make a ton of money with these two.