The global paint and coatings market – part of the specialty chemicals subsector – is expected to reach $153.6 billion by 2020. However, ongoing trade tensions between Beijing and Washington, which includes Chinese tariffs on $10.8 billion worth of chemicals and plastics, continue to cast a cloud over the industry that relies on healthy global exports. Paint and coatings companies also face a challenge from tight operating margins caused by raw material inflation.
In painting a more positive outlook, leading players in the space continue to strategically review their operations, such as looking at cost cutting and productivity improvement measures, to offset pressure on margins and sluggish international trade. Moreover, the industry’s trade group, the American Chemistry Council (ACC), expects the specialty chemicals segment to see production growth of 2.2% in 2019, benefiting from robust manufacturing activity in the industrial goods and construction sectors.
The charts of the three paint and coatings stocks discussed below sit at crucial technical support that provides an opportunity for swing traders. Let's take a closer look at each name in further detail.
The Sherwin-Williams Company (SHW)
The Sherwin-Williams Company (SHW) manufactures and sells premium paints, coatings and related products. It operates roughly 4,900 stores and serves professional, industrial and retail customers in North and South America, the Caribbean, Europe, Asia and Australia. The paint maker recently made the USA Today list of the world's 20 fastest growing retailers, coming in at number 10, with its 17% sales growth between 2017 and 2018. Sherwin-Williams acquired Valspar in May 2017 for $11.3 billion, making it one of the largest coating companies in the world. Reports surfaced Tuesday that the company is preparing proposals to build a new headquarters, although Sherwin-Williams has not yet confirmed these reports. Trading at $431.92 with a market capitalization of $39.66 billion and offering a 0.99% dividend yield, the stock is up 10.35%, outperforming the specialty chemicals industry average by nearly 8% as of May 22, 2019.
Sherwin-Williams shares trended steadily higher from late December through April. This month, the stock has pulled back toward the 200-day simple moving average (SMA) and a horizontal line that provides a confluence of support at the $424 level. Those who take an entry should look to book profits near $460 where the price may encounter resistance from the April swing high. Place a stop-loss order just beneath the 200-day SMA to protect trading capital.
PPG Industries, Inc. (PPG)
With a $25.73 billion market cap, PPG Industries, Inc. (PPG) makes and sells paints, coatings and specialty materials in the United States and globally. The Pittsburgh, Pennsylvania-based company targets customers in the automotive, aerospace, construction and industrial markets. PPG announced Tuesday that it plans to continue its current strategy following a review of its business. The review, conducted by The Goldman Sachs Group, Inc. (GS) and Morgan Stanley (MS), looked at the optimization of manufacturing processes, trimming of low profitability businesses, discontinuing unprofitable product lines, and the reorganization of cost structures in specific business units. As of May 22, 2019, PPG stock pays a 1.63% dividend yield has gained 7.56% year to date (YTD).
A “golden cross” signal on PPG’s chart - when the 50-day SMA crosses above the 200-day SMA - heralded the emergence of a new uptrend in early March. Therefore, the recent retracement to the 200-day SMA and a horizontal trendline provides a “buy the dip” trading opportunity. After initially falling below the 200-day SMA early in yesterday's trading session, the price staged an impressive intraday reversal to close above the much-watched indicator, suggesting the current pullback may be over. Traders who go long should set a take-profit order in the vicinity of last month’s high between $118 and $120. Set a stop under Tuesday’s low at $106.68.
Ferro Corporation (FOE)
Ferro Corporation (FOE) manufactures and markets chemicals, glass and tile coatings, with its products used in appliances, household furnishings, automotive, industrial products, building and renovation, packaging and electronics. Analysts expect the $1.24 billion coating giant to post full-year 2019 earnings growth of 48.9%. FMC reported adjusted earnings-per-share (EPS) of 22 cents in the first quarter, exceeding expectations of 20 cents. Over the last four quarters, the company has surpassed consensus EPS estimates three times. The Street has a consensus price target of $20.86 on the company – a 38% premium to Tuesday’s $15.10 closing price. Ferro stock, which has 97.67% institutional ownership, trades down 3.70% YTD as of May 22, 2019.
Price action is reminiscent of a mountain YTD in 2019 – a steep uptrend between January and March, followed by a steep decline from March to May. The stock finds significant support at $15 from the late December/early January swing low and the lower trendline of a falling wedge pattern that has formed over the last two and a half months. The relative strength index (RSI) has also recently climbed out of oversold territory that may trigger some short covering in the coming sessions. Aim to bank profits on a move up to the mid-April high at $18.89. Cut losses if the stock closes beneath the Dec. 26 low at $14.59.