Please ensure Javascript is enabled for purposes of website accessibility

Why Leggett & Platt Stock Jumped 32% in April

By Reuben Gregg Brewer - May 5, 2020 at 9:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As the world processed the COVID-19 shutdowns, industrials like Leggett & Platt bounced off their lows.

What happened

Shares of industrial Leggett & Platt (LEG 0.70%) rose by 32% in April according to data from S&P Global Market Intelligence. That, however, wasn't enough to make up for the year-to-date declines, leaving the stock down about 30% for the first four months of the year. It was really just caught up in the moment, as the stock market rallied off a low. In other words, don't get too excited.

So what

Leggett & Platt is something of a unique company, making bedding products (bed springs, foam, bed components, and private label mattresses), auto seats, and furniture components, among other things. However, much of what it sells is economically sensitive, with recessions leading to notable declines in demand. So, earlier in the year, when investors were concerned that COVID-19 containment efforts would push the world into a recession, Leggett & Platt fell hard, along with the broader market.

Two hands holding blocks spelling out the words "risk" and "reward"

Image source: Getty Images.

Then, in April, investors started to get bullish again, and quickly pushed stock prices higher. Leggett & Platt rose, too. Yet a recession is still brewing and demand for its products is likely to be weak for some time. Management warned about these trends in early April, when it withdrew full-year guidance. When the company reported earnings in early May it basically repeated that message, saying the recent flow of orders was roughly 45% below normal levels.    

Now what

April was a good month for Leggett & Platt's stock, but it was hardly a good month for the company's business. The pain, meanwhile, is likely to linger until economic conditions start to sustainably pick up again. The timing on when that happens is unclear as the world works its way back from the COVID-19 shut downs. Long-term investors should tread with caution here. The April rally wasn't built on strong operating fundamentals. That's not inherently Leggett & Platt's fault, but the company still has to figure out how to survive a difficult period that is definitely not over yet. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Leggett & Platt, Incorporated Stock Quote
Leggett & Platt, Incorporated
LEG
$41.64 (0.70%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.