The wild day we saw Tuesday makes for a good time to go back to some recent ideas and see how they are performing.
Sherwin-Williams (SHW) continues to get little love, even with the overall great broad-based rally today. Shares were up "only" 1.76%, although on below-average volume off a new 52-week low, as I anticipated. While I believe Sherwin is a good company and the housing stigma is a tenuous-at-best stigma, it is undeniable that the company has attracted that label and the stock will suffer from it. Sometimes perception matters, and as a coatings maker I believe Sherwin's stock price will only recover later into the housing cycle.
Contrast the action in SHW with the nice day turned in by Weyerhaeuser (WY) after it too set a new 52-week low. While there might not be a greater sense of urgency in the restructuring, investors seem to have some renewed sense of enthusiasm for a combination of early-cycle housing and downstream industrial exposure. Having recently re-read Nassim Taleb's excellent Fooled by Randomness, I'd be guilty if I drew too many conclusions from contrasting SHW and WY today… so I won't.
The missing piece here is USG, which I regard as a mid-cycle housing play. It was up in the range between that of SHW (+1.76%) and WY (+4.76%), but the volume was quite light – a continuation of what we've seen in the last year with the volume there drying up. Given what I've seen from the 13F filings of several of the larger holders of USG, I'm inclined this is due to accumulation by long-term value-oriented holders – not that I really know what else to make of that.
Switching over to financials, it looks like Stephen caught a big bounce in troubled jumbo mortgage lender Thornburg (TMA). The rally in TMA makes this move similar to the January bounce, when we saw some of the worst companies post some stellar gains – partly because they were oversold, partly because they were so ill-capitalized that they stood to benefit the most from rate cuts. But there is one trait that is vastly different this time around: quality of the institution matters more.
Consider that Wells Fargo (WFC) and US Bancorp (USB) outperformed Citigroup (C) and Bank of America (BAC), respectively. If this was the January rate cut rally, I'd expect the reverse to be true – but this liquidity injection is dependent on having highly rated (i.e. AAA/Aaa) paper as collateral – and it makes sense that Wells and USB have more of that than Citi or BoA because the former pair's underwriting standards are objectively better. I see a similar situation at American Express (AXP), which valiantly (again) fought off my hopes that I could buy it under $40.
Finally, Primus (PRS), the credit default swap writer that I discussed last week, was up more than 13%. One of their larger institutional shareholders has been adding to their position, and a filing shows that a member of executive management also purchased shares last week. PRS is a bit of a gamble, but one that I actually wouldn't feel uncomfortable taking. I'd be a buyer of Primus around $4.00/share with the more speculative portion of my portfolio.
Disclosure: I own USG, but no other stocks mentioned here.