TAKING STOCK

Dear Mr. Berko: Please tell me about Sherwin-Williams and what you think about the stock as a long-term (five-year) hold? I have $4,500 to invest and that should be able to buy 150 shares with commission costs.

E.P.  Gainesville, Fla.

Dear E.P.: The Sherwin-Williams Co. (SHW-$28) is a $5.6 billion empire divided into four divisions: Paint Stores, consisting of 2,650 stores in the United States, Mexico, Canada, Puerto Rico and the Virgin Islands; Consumer, which develops, manufactures and distributes paint, coatings and related products to third-party customers as well as the Paint Stores Division; Automotive Finishes, which develops, makes and sells motor vehicle finish, refinish and touch-up products in North and South America and parts of Europe; and International Coatings, which licenses, makes and sells paints, coatings and related products all over the world.

Sherwin-Williams is more than paint in a can. Sherwin-Williams is also metal finishing, enamels, solvents, coatings, preparations and treatment. SHW makes coatings for interior and exterior woods plus a complete array of finishings systems to achieve a specific appearance. SHW makes stains, fillers, sealers, topcoats, lacquers, conversion varnishes and polyurethanes.

SHW makes plastic-finishing systems with a complete range of high-performance interior and exterior finishes and colors. SHW also makes an enormous variety of solvents, thinners and reducers that change the consistency or viscosity. SHW makes cleaning supplies (a huge variety), wall-covering adhesives, wall-covering removers and tools, as well as every kind of ladder and scaffolding you can dream about, plus rollers, brushes, dropcloths and thousands of other items. SHW is the most prominent name in paints, coatings and accessories in the world.

The company has 26,000 employees, and I’m impressed that officers and directors own 19 percent of the stock. And why not? SHW had $800 million in revenues in 1982, which has grown sixfold in 20 years. That’s one reason. The dividend has increased every year from 5 cents in 1982 to 62 cents today. That’s another reason officers and directors own the stock. Book value has grown each year from $2.20 in 1982 to $12 today, and net income has increased from 27 cents a share in 1982 to $2.04 today. Those are two more reasons.

SHW has a strong balance sheet, a superb product recognized for consistent quality and a dominant worldwide position in an almost recession-proof industry. Earnings for 2002 were $2.04 and are expected to reach $2.23 this year and $2.47 next year. And those are three more reasons.

In the past 10 years, SHW has traded at an average price-earnings ratio of 16, and its P/E today is a rather low $13.75. Earnings for next year are easily expected to come in at a minimum of $2.40 a share and at an average 16 times earnings, SHW could certainly reach $38 a share.

There are nine suits on Wall Street who follow SHW, four of whom rank SHW a “buy” while five of them rank it a “hold.” Several suits believe SHW could trade in the mid-$50 with earnings of $3.40 to $3.50 in the coming four years. I agree!

I think SHW has little downside risk and offers a strong three- to five-year total-return potential. That’s another bunch of reasons why officers and directors own 28 million shares of SHW. And I think 150 shares would suit you just fine.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or visit his Web site at www.berkoradio.com.  (c) Copley News Service  Visit Copley News Service at www.copleynews.com.