Whirlpool Upgrade May Lift Home Appliance Stocks

Valuation seen as inexpensive amid stable margins and shipments

Whirlpool Corporation (WHR) shares jumped almost 3% Thursday after JPMorgan upgraded the stock from "neutral" to "overweight" and bumped its price target to $172 from $155. The investment bank noted that the home appliance giant currently trades at just 10 times and 8.5 times respective 2019 and 2020 earnings, representing discounts of roughly 10% to 15% to its five-year averages. The company's consistent margin performance and stable shipments in North America, as well as its significant room for growth in Europe, is not fully priced into the appliance maker's stock, according to the bank, per streetinsider.com.

Below, we take a more detailed look at Whirlpool, along with two other attractively valued home appliance stocks that may ride on the tails of the upgrade. Each issue appears to have entered a new uptrend and may see additional gains as investors shift from momentum stocks to value plays. Let's use the charts to pinpoint possible trading opportunities.

Whirlpool Corporation (WHR)

Whirlpool manufactures and sells home appliances in North America and internationally. The company's primary products include washing machines, clothes dryers, refrigerators, freezers, and cooking appliances. The owner of brands such as KitchenAid and Maytag surpassed analysts' second quarter top- and bottom-line expectations to deliver growth of 0.9% and 25.3%, respectively, compared to the same quarter last year. Management credited higher sales, margin expansion, and cost efficiencies for the positive results. The company now expects a full-year 2019 earnings per share (EPS) guidance range of between $14.75 and $15.50, compared with its previous forecast of $14 to $15. As of Sept. 27, 2019, Whirlpool stock has a market capitalization of $9.84 billion and is trading almost 50% higher year to date (YTD). Investors additionally receive a 3.19% dividend yield.

After climbing above the July swing high in early September, Whirlpool shares traded within a tight pennant, indicating upside continuation. That continuation occurred in Thursday's trading session when the stock broke out from the pattern to set a new 52-week high at $159.21 after receiving the broker upgrade. Considering the stock's float has roughly 9% short interest, further buying has the potential to trigger a short squeeze as traders rush to cover their positions. Those who enter should set a take-profit target near resistance at $175 and place stops either beneath yesterday's low at $152.30 or under the pennant's lower trendline south of $150, depending on personal risk tolerance.

Chart depicting the share price of Whirlpool Corporation (WHR)

Newell Brands Inc. (NWL)

With a market value of $7.75 billion, Newell Brands Inc. (NWL) manufactures and markets consumer and commercial products globally. The New Jersey-based company's Food and Appliances segment offers household products under prominent brand names including Crock-Pot, Breville, and Sunbeam. Newell Brands reported second quarter EPS of 45 cents to deliver a 25% bottom-line surprise. The company has exceeded earnings projections for the past four consecutive quarters. Revenue of $2.1 billion during the period came in slightly below expectations due to unfavorable currency movements and softer core sales that declined 1.1%. Newell Brands trades at about nine times forward earnings, significantly below the industry multiple of 18 times. As of Sept. 27, 2019, the stock issues a handy 5.14% dividend yield and has returned 2.21% YTD. Over the past three months, however, Newell shares have rocketed over 20% higher.

Since forming a triple bottom between April and August, Newell's share price has continued edging higher to break above a downtrend line that extends back to mid-2017. Furthermore, the 50-day simple moving average (SMA) is about to cross above the 200-day SMA to generate a "golden cross" buy signal, indicating the emergence of a new uptrend. As this may be the start of an upside move, traders who enter at current levels should consider using a trailing stop to let profits run. For example, amend stop-loss orders under each subsequent higher swing low.

Chart depicting the share price of Newell Brands Inc. (NWL)

Conn's, Inc. (CONN)

Conn's, Inc. (CONN) sells durable consumer goods and related services in the United States, operating through two segments, Retail and Credit. The specialty retailer stocks home appliances, such as refrigerators, freezers, washers, dryers, and dishwashers, as well as televisions, home theater systems, and portable audio equipment. The $717.67 million company posted second quarter net income of 62 cents per share, easily topping Wall Street forecasts of 51 cents per share. Conn's sales of $401.1 million also came in better than expected for the quarter, beating projections by $3.2 million. Analysts have a 12-month price target on the stock at $33.83, representing a 36% premium to Thursday's $24.83 close. Conn's stock doesn't offer a dividend yield but has gained nearly 32% on the year, outperforming the S&P 500 Index by about 13% as of Sept. 27, 2019. The shares trade at only 9.5 times forward earnings.

Conn's shares tracked lower between September 2018 and May this year but have since reversed course. After its impressive earnings report on Sept. 3, the company's stock gapped up on heavy volume above the 200-day SMA and a multi-month trendline. The price continued trending higher for several weeks on momentum-based buying but has recently retraced somewhat, providing a "buy the dip" trading opportunity. Those who open a long position should think about booking profits near $37.50, where the stock is likely to find significant overhead resistance from the previous double top pattern. Protect capital by setting a stop beneath the gap low at $22.41.

Chart depicting the share price of Conn's, Inc. (CONN)
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