Whirlpool Spins with Housing

06/06/2014 8:00 am EST

Focus: STOCKS

Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

Few stocks are as closely associated to the health of the domestic housing market than our latest recommendation, the largest manufacturer of major home appliances in the world, observes Taesik Yoon, editor of Forbes Investor.

Whirlpool (WHR) markets and distributes its products in nearly every country around the world under brand names such as Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Bauknecht, Brastemp, and Consul.

More than half of the company's sales are generated in North America and a sizable portion of appliance demand comes from new and existing home sales.

So, perhaps it shouldn't be too surprising that the stock is down over the past several weeks following an analyst downgrade based on the slow pace of recovery in the US housing market, so far, this year.

However, we see a number of reasons to remain optimistic on WHR's prospects, both over the near term and farther out. First, the housing market continues to see strength in multi-family homes.

Indeed, buoyed by demand for rental units, new ground breaking on multi-family homes soared 39.6% in April. Similarly, building permits climbed 8.0% to an annual pace of 1.08 million units—the best pace in nearly six years.

We also expect continual growth in replacement market demand, which is responsible for approximately 50% of industry sales.

As for its international operations, we believe that investors are not properly valuing the substantial growth opportunity presented by its pending acquisition of the majority stake in Hefei Sanyo, a major provider of appliances in China.

Expected to close in the second half, the acquisition should significantly boost WHR's presence in the second largest global economy (where appliance penetration remains well below levels in the US).

These are the key reasons why we think the current price offers an excellent entry point in a stock that is now trading at just 12 times the midpoint of the company's expected full-year earnings guidance of $12.00-12.50 per share—guidance that implies strong growth of at least 21.6% for the rest of 2014.

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