For investors interested in buying shares of Whirlpool (WHR) the recent market rout amounts to a giant rewind.
On April 26 Whirlpool (WHR) blew away Wall Street earnings estimates for the first quarter of 2010. Earnings of $2.13 a share came in a full 80 cents above Wall Street expectations. At $4.3 billion revenue was up 19.4% from the first quarter of 2009 and about $600 million ahead of estimates.
And to top it off the company told analysts to expect earnings of $8.00 to $8.50 for the full 2010 year. That was up from its previous guidance of $6.50 to $7 and above the Wall Street consensus projection of $7.08 for the year.
The stock soared on the news, rising $10.20 a share that day to an all-time high of $112.42.
Too pricy for me. I calculated a target price of $124 a share within 12 months. After the stock’s $10 pop that left me looking at a potential return of 12.7% in a year. Not enough given the economic and market risk right now.
But then the sell off that culminated (I wish) with the huge whoosh of May 6 gave me another shot. Whirlpool closed on May 6 at $102.90, giving back all its gains on the earnings and guidance news. Today, May 7, it’s down further to below $100 as of 2 p.m. in New York. So I’m going to add this appliance maker to Jubak’s Picks with this column with a target price of $124 by May 2011.
Let me be clear why I’m buying.
First, I think the U.S. economy is showing solid growth. That was confirmed for me by this morning’s rising jobs numbers. (For more on that data see my post https://jubakpicks.com/2010/05/07/good-news-from-the-u-s-jobs-number-although-the-stock-market-doesnt-care/ ) I think this maker of home appliances is a good way to play that economic recovery and the rising consumer spending that comes with increased confidence that the economy isn’t about to step off a cliff again.
Second, I think that as one of the last men standing in a consolidating global appliance industry—Whirlpool acquired Maytag in 2006—I think Whirlpool is positioned to pick up efficiencies of scale and to gain from growth in developing economies. Standard & Poor’s forecasts that operating margins will climb to 5.4% in 2010 from just 4.8% in 2009. About 60% of the company’s sales come from North America. Europe, which the company is projecting will show no growth in 2010, accounts for 19% of sales, but the company’s second biggest market at 22% of sales is fast-growing Latin America. Whirlpool inked two joint ventures in China in 2008 and 2009 to manufacture refrigerators and washing machines in China for the domestic market as well as for export.
Full disclosure: I don’t own shares of any company mentioned in this post.
Jim,
I would be interested to see your update on YARIY and CEDS. Lots of volatility happened there since your last analysis.
Thank you
DJBarber: what worries me is WHERE is this money coming from? Are they just creating it? Is this a product of growth? Or is this quantitative easing? In order to fight increased interest rates these guys, it seems to me, are going to purchase debt i suppose. But how long does that last if there is no growth. The USA is doing the same thing with QEasing. Is there really growth or are we awash in play money. I am still learning this stuff but it sounds like ‘monetizing’? the debt. At some point, it seems to me, that investors will demand that interest rates rise, as in Greece, and then all hell breaks loose….
Rumor confirmed-
EU Preps $645 Billion Fund to Fight ‘Wolfpack,’ Debt Crisis
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3ky1O_TIbt8&pos=1
What worries me about this pick is the huge net cash flow decrease from 09Q4 to 10Q1. 2009Q4 WHR was 1.2 billion dollars in positive cash flow and with 2010Q1 they are negative 189 million. Anyone feel qualified to address this issue?
MeanJoe, stick with a good mutual fund, like WASCX or FESOX or OAKBX. I agree with Christopher, unless you have a solid base in mutual funds, then buying stocks doesn’t make sense.
MeanJoe,
I don’t think there is any way to follow Jim’s picks with $10,000. You probably don’t have enough to get equal positions, not to mention being eaten up by commissions and such.
On the other hand I doubt anyone here is actually following Jim’s picks. From what I see everyone is just looking at each position Jim suggests, and decides if they want to buy/sell depending on their own beliefs. Also I think you would find that for most people here whatever they buy out of Jim’s picks is a small part of their overall portfolio. So where they might go ahead and put $2000, $5000, or more in one stock, they might be doing it knowing that they have investments in many other things that balance it out.
My own approach is that I had tons more money in mutual funds before I even looked at a particular stock. Others might disagree with that, but certainly if you only have $10000 to invest (as in no other investments), then I think you would have a very hard time to protect yourself.
Perfect example for my question. Given limited money; how does one follow Jim’s picks?
Say I can come up with $10,000 to invest, trade.. gamble. We can own 100 shares of TSM and maybe use options against the stock. We sell TSM. Now, what about WHR? We cannot gamble everything on one stock. Do we buy 10 shares? Seems wrong and the covered call strategy is not possible.
So, again, what do we do with little money facing high priced stocks?
Sounds kike you guys think the value is there but the confidence is waining.
I will for sure test the bottom before I purchase whr
have seen the market flip against this type of panic. The market often bucks what the general public thinks
Emanas, i can’t be concerned solely with the near-term. I can see you are correct that the dollar, out of default, seems to have been given some assistance because of the debt that is now ‘outing’ itself in Europe. But is that because of dollar strength or because of Euro weakness? The truth i believe is that California is far worse off then Greece and England is worse off then European countries. And the USA is in the back of the pile. We paper it over because we can print money. Do you recall the toxic mortgages? Where did they go? Mark to marketed. They are still there. I don’t trust American equities. But most of all i don’t trust our accounting. I don’t think its accurate. We are probably close to 80trillion dollars worth of debts in this country. And instead of lowering that – its getting higher. I park my cash in money markets and i have precious metals as well. Some bonds. Thats about it. Whirlpool looks good to me at about 50 bucks a share. I know, i know. Eyore here.
I work for a Whirlpool supplier. We have been running 24/7 since the start of the year and I’ve heard Whirlpool plans on being this busy until September/October.
arihalli,
thanks for the skepticism, but your concern with the weakening of the dollar (in the near term at least) seems misplaced. Have you been listening to whats going on in europe???? just wondering.
And if you don’t trust american equities i suppose most of your cash is buried in the backyard?
Andante-
They won’t need creditability, they now have enough “interventional” fire power, they finally seem to have “got it”.
Shoud be interesting…
Off Topic: For anyone who was interested in the A123 Systems IPO almost 8 months ago (ish), the stock has fallen below $10.
After the last two days, I don’t think folks are going to be rushing out and spending. After a spook like this it undermines the confidence of consumers. Let’s just hope all the drama is over.
DJBarber
I certainly hope you are right and the plan has enough creditability to calm the markets.
Andante-
I believe what we will see on Monday will give the EU the breathing room they need…
EU to Set Up Fund to Prevent Spread of Greek Crisis (Update1)
http://www.bloomberg.com/apps/news?pid=20601087&sid=azNNZZQK3AQI&pos=1
Any company that has the majority of it’s manufactoring in China runs a huge downside risk of losing it’s consumer base. The substitution of lead based paints, introduction of cancer causing chemicals into pet food, loss of automobile quality control … all follow the same pattern. Produce the first parts to spec and then change the rules. I have had lawnmowers that used to last for five to ten years fail in two months because chinise parts were used. Unless the firms have an ironclad quality control program in place, the financal gains may only be temprorary and the results a disaster. Add to this the recurring history of social revolution in China every 12 to 20 years and I would want to hedge my bets on any company that has a strong Chinise manufactoring base.
I just want to express a belief that the markets valuations were sky high when Whirlpools earnings were so highly touted. Secondly, should we believe these companies as the USA corporations accounting is suspect. Thirdly, werent the expectations lowered enough so that earnings could be higher? As the dollar increasingly gets weaker i think the dow will gravitate toward the 8k or lower levels. Unless Whirlpool makes washing machines that have ‘golden’ covers – i don’t trust American equities to make money. I think they are swimming upstream.
DJBarber
The current EU/IMF deal solves some short term liquidity concerns but doesn’t answer the longer term questions concerning solvency and requires significant austerity. The current package didn’t work in calming the markets because there is no confidence that it will work. They need to come up with some “circuit breaker” for the situation.
They make Sears’ Kenmore. For those in the market for appliances, remember that dryers do not qualify.
12:06
Rumor
“A rumor is circulating that the G-7 will announce this weekend a E600 bln ($750 bln) line of credit to whomever needs it, as many as 1,000 banks at 1% for 1 year. Question is where is the money going to come from? The IMF could raise it in the credit markets or the central banks could issue it but that would potentially be inflationary, albeit that is not the issue at present. It is the calming of the financial markets.”
-Ried Thunberg ICAP
My questions is isn’t appliance upgrade are usually link to home improvement, which will still take sometimes to recover? And Sears is their largest customers, are Sears selling them quickly? I am just wondering….
i agree that the state programs will drive increased appliance purchases….florida’s $17,585,000 ran out in 1 day. but even at these prices the stock has more than quadrupled off it’s march ’09 low. how much of this is built into the price?
I agree. A new washer to wash the sweat drenched clothes acquired while watching the markets and a new frig to keep the beer to cry into wouldn’t be a bad idea either.
terryw:
None can tell the ABSOLUTE top or bottom in advance. We do our best and live with our decision. Overall, I am happy if I bought at historically low period of time and paid reasonable price.
In California the program started on April 22, and currently has used $5,260,000 of the $31,680,000 allocated. It runs until May 23.
I hear in Texas they ran through the money in 24 hours.
just moved tsm money into whr, well see how this goes. looking at weekly charts for most stocks, they are giving off bearish candle sticks, so things could be headed down more from here. But trying to time the exact bottom is often futile. Its a good enough point of entry here imo.
Can anyone recommend a good charting tool? I’ve been using PremiereTrade for years, but unfortunately they just decided to go FX only. I really liked the program but now it doesn’t work for stocks. I would appreciate any recommendations!
I am looking for a new refrig.
One other potential tailwind for this pick is the cash for clunkers-esque program that is getting fired up in the US that includes washers and other appliances. Personally, I’m waiting for my state to start the program and then I will be out buying a new washer.