How long are you willing to wait for a turnaround?
No doubt about it, shares of Whirlpool (WHR) are cheap at 7.9 times trailing 12-month earnings per share.
But the company’s October 27 earnings report for the third quarter was depressing. Including all items, the company reported earnings of $1.02 a share, down from $1.15 in the third quarter of 2009. Excluding these special items, earnings came to $2.22 a share but that was below the Wall Street estimate.
Sales grew by just 0.5%. That was seriously below the 14% sales growth reported in the first half of the year.
The big problems were in the company’s business in developed economies. Revenue in North America fell by 3% and revenue in Europe dropped 8%. Hefty revenue gains in Latin America (13%) and Asia (21%) weren’t enough to offset those drops since developed economy revenues at $3.23 billion are far bigger than Latin American and Asia revenues at $1.3 billion.
Now at some point Whirlpool’s developed economy sales will pick up. But it doesn’t look like that will happen any time soon. The company cut its forecasts for full year 2010 U.S. unit sales growth to 3% from a previous 5%.
Whirlpool’s recovery will probably track the recovery in the U.S. housing market very closely and that recovery looked further away this week with the disclosure that mortgage documentation problems were slowing foreclosures to a snail’s pace. (For more on the slow rate of foreclosures see my post https://jubakpicks.com/2010/10/29/foreclosures-slow-to-a-crawl-as-banks-are-forced-to-refile-faulty-paperwork/ ) Housing prices and home building activity won’t recovery until the market clears the huge backlog of foreclosed homes. So the delays in the process caused by improper bank paper work that has forced banks to refile hundreds of thousands of foreclosures, has extended the woes in the housing sector—and for stocks such as Whirlpool that sell into that market.
There wasn’t much hope for Whirlpool in the October 29 GDP numbers either. Residential investment—GDP speak for housing activity—was down 29% in the quarter. (https://jubakpicks.com/2010/10/29/third-quarter-gdp-comes-in-on-projection-unlikely-to-change-feds-decision-next-week/ ).
If Whirlpool paid more of a dividend, I think I’d be inclined to hold the stock for the eventual recovery in the sector. But the stock yields just 2.25%–and that’s not enough considering how long I’m likely to wait. I’d get interested in this one again if it dropped below $65 or if the calendar read May instead of October.
As of November 2, 2010, I’m selling Whirlpool out of Jubak’s Picks with a loss of 23% since I added it to the portfolio on May 7, 2010.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
Stay the course for an uptik of at least 10%.
arihalli,
Jim stated so many times that he is NOT trying to time the markets.
Jubak Picks Portfolio has a time perspective of 12 to 18 months, that’s is not long term!
His recommendations are based on data available at the time, if the company or macro economics changed then the stock may not be any longer a suitable investment for Jubak Portfolio, but it may still be OK for your Portfolio (diversification?)and you may keep it.
I did this several times with mixed results.
This one is a loss for whoever bought it as recommended but look at other stocks that Jim recommended, they are up 30% to 40%, I missed all these because I tried to time a better entry point but made 25% gain on WHR.
Well it was better to follow JIM after all!
You may also try to beat Jim by selecting your entry / exit points.
In addition Jim is also trying to keep powder dry for a correction that will definitly happen and there is a long list of better stocks to buy then than WHR.
B/rgds
I dont understand. You recommended this at $102 but it was only in Jubal Picks and not in your portfolio? What is the difference? And i recall remarking there couldn’t be much upside since the market was overbought anyways and the housing sector was tanking. The rapidity at which these blue chips are turned over in your portfolio sounds like a ‘trader’ and not investor mentality. Not that its bad – but i thought it was a mutual fund and isnt that for long term investors?
Not that it’s important but I’m with who and Marr.
It’s only money…..
Not to mention the Ex-dividend date is in only 2 weeks…
I think you might be giving up too soon on WHR. Your original stated investment thesis was based on improving economy and WHR being a winner in consolidation. What’s changed in the last 6 months so much for the worse that a one-year price target of $124 has now deteriorated to a sell at $77? Sure, the housing market looks bleak, but it did in May as well. And renters, as well as home owners, use appliances. The apartment owners still have to replace them in time. Even if your one-year target of $124 gets pushed out 4 years, that’s still roughly a 15% annual return from here, with dividends included.