Tuesday Ticker: Sherwin-Williams is ‘an unsung growth hero,’ Bitcoin comes of age and the price of oil may be heading up

John Morikis, CEO of Sherwin-Willliams. The company was named 'News Maker of the Year' by Crain's Cleveland and called 'an unsung growth hero' by investor website SeekingAlpha.com.

By Jeff Sanford

Toronto, Ontario — December 27, 2016 — The holiday season usually sees the flow of market-related news slowed to a trickle. Nevertheless, there are a few bits of news from the companies in the automotive claims economy, as well as year-end chat about the best performing stocks and asset classes from the year that was.

– The Edmonton Post interviewed some of the competitors in an ongoing stock-picking competition the newspaper had sponsored. One of the participants, Shawn Allen, is a publisher of a web-based investment advisory service. When asked what stocks he thought could do well in 2017 he mentioned AutoCanada, the Edmonton-based firm that operates Canada’s largest publicly-traded dealership network. According to Allen the company’s shares have, “… been hit hard due to the firm’s heavy concentration of dealerships in recession-bound Alberta. But with oil prices on the mend Allen believes AutoCanada’s shares could rise ‘substantially’ in 2017 as the provincial economy rebounds.” The company’s stock is currently trading around $23 per share.

– Sherwin-Williams was also in the news just before the Christmas break. The Cleveland edition of the business news publication Crain’s named the company its “News Maker of the Year.” This year saw John Morikis ascend to the position of CEO of Sherwin-Williams. He replaced Christopher M. Connor, who stepped down after 16 years at the helm. Morikis becomes just the ninth CEO of a company that has been around for 150 years now. Morikis joined Sherwin-Williams in 1984. According to the Crain’s story, “Morikis had been in his new role for less than three months when Sherwin-Williams announced that it had agreed to buy Minneapolis-based rival Valspar Corp. for about $11.3 billion, a move that would form a merged company based in Cleveland … This deal is the largest in the company’s history …”

– That Sherwin-Williams has managed to exist as a stable business over fifteen decades is no small feat. The remarkable stability of Sherwin-Williams is, “… an incredible growth story that does not get much attention,” according to another story published last week at investing website SeekingAlpha.com. The author of the story suggests Sherwin-Williams is one of those rare companies that provides solid and steady growth over the very long-term: “In the last 10 years EPS [earnings per share] has grown by over 20% annually.” According to the report, “Following their acquisition of Valspar they will be the largest paint & coating company in the world, surpassing PPG Industries.” The report goes on to say that, “Sherwin-Williams does not get the kind of coverage a company with its history of incredible returns should … In the past 10 years Sherwin-Williams has increased its EPS from 3.28 in 2005 to 11.16 in 2015, good for 24% annual compounding. In that time the stock has returned over 20% annually.” Earnings per share have increased from $4.14 to $12.40 since 2011. As for the future the analyst expects the company to continue it strong performance. Paints and coatings are basic to the modern economy. “Current analyst expectations have SHW growing EPS at 10% annually for the next 5 years. I am a little more optimistic than that. With the consummation of the Valspar acquisition and a normalization of foreign currency exchange rates, SHW should be able to continue providing annual EPS growth in the mid-teens,” according to the analyst.

Related Market Notes

– It was a good year for overall performance of markets in 2016. One analyst notes that, “As of mid-December, all major North American equity indexes had posted double-digit gains, with Toronto’s S&P/TSX Composite leading the way. Helped by a big rebound in energy and mining stocks, Canada’s benchmark equity index was up 18 per cent …” The same report notes that, south of the border, all three major indexes posted handsome gains: “The Dow Jones Industrial Average led the way with a gain of 15.7 per cent, followed by a 12.1 per cent uptick by the S&P 500 Index and a 10.9 per cent jump by the Nasdaq Composite Index.”

– Generally, the returns on stock markets were stronger than expected this year. The single best performing stock on the S&P 500? That award goes to chip-maker NVIDIA, which has become a favourite of those hoping to invest in the emerging world of automated vehicles. Stock in the company (which has been touting its AV-related products throughout 2016) was up more than 200 percent on the year.

– Overall commodities did well this year. The BlackRock World Mining fund was one of the best performing funds of 2016, registering a return of about 95 percent so far this year.

– One other ‘commodity’ that did well this year was Bitcoin. Last year the U.S. Commodity Futures Trading Commission, “… declared bitcoin and other digital currencies to be commodities falling under its purview.” If the digital currency is considered a commodity—which seems arguable—it was the best performing one of the year with the price of a single coin soaring more than 100 percent this year. According to a report, “Bitcoin analysts attribute this year’s advance to several factors: increasing adoption of bitcoin among professional investors, improving market fundamentals and a perception that the world’s largest economies are growing increasingly unstable.” According to the same story, “Trading volume has also increased dramatically in 2016, peaking at more than $330 million a day over the summer.” The advance in Bitcoin beat the return on other commodities that did well this year, including coffee (up about 10 percent), soybeans (up 15 percent) and crude oil (up 40 percent). The large rise in the price of crude oil this year saw the number of Canadian mergers in the pipeline sector sore, with the total value of transactions hitting a new record high of $174.5 billion.

– Where does the price of oil go from here? This is the big question in Canada. If the price continues to rise, the slowdown in Alberta will give way to a period of growth. And there are indication this is going to be the case. Investor optimism seems to be returning to the crude oil market. A recent deal among OPEC producers is expected to lead to cuts in production that would put upward pressure on crude oil prices in the year ahead. Sure, there are many who think that as the price rises the amount of fracked shale oil being produced daily will begin to rise again (fracked shale oil production has been falling this year), and, as a result the price of crude will, according to some fund managers, be lower than many think. But another news report in the financial press notes that just before Christmas at least one investor out there is betting that the price of oil will go to $100 a barrel by 2018. According to the report the investor bought a, “… pre-Christmas lottery ticket,” with the purchase of a $100 December 2018 call option. That contract gives the investor the right to buy oil for $100 per barrel in December of 2018. That is, the investor is betting the price of crude will be higher than $100 a barrel at that point. Could that investor be on to something? According to The International Energy Agency, “… if [OPEC] producers don’t cheat on their commitments, oil demand could overtake supply in the first half of next year, a significant change after three consecutive years of oversupply.” A price of $100 a barrel would likely short-circuit the consumer economy (just as oil at $140 a barrel in 2008 sparked the Great Recession). So let’s hope, all factors considered, that the price of oil comes in about $60 a barrel over the year ahead. At that price Alberta would recover but the consumer and retail economy could still hum along at a steady pace. 


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