Shares in paint and coatings company PPG Industries (NYSE:PPG) declined 20.5% in the first half of 2020, according to data provided by S&P Global Market Intelligence. The decline is understandable as PPG is a company whose sales tend to correlate with the industrial economy, and in particular the construction and automotive markets.
If the COVID-19 pandemic has negatively impacted the near-term outlook (automotive plants shut down, construction activity halted, industrial production curtailed) for these industrial end markets, then it's no surprise that PPG stock will be sold off accordingly.
While it's never good news to hear of near-term earnings pressure, it's also important to put it in the context of the long-run potential of the company. The paint and coatings industry is interesting for investors because the leading companies, such as PPG, Sherwin-Williams, and Axalta, all tend to generate relatively high return on equity and cash flow. In addition, the industry is in an ongoing process of consolidation -- something that often leads to an increase in margin overtime.
Therefore, if you think PPG's end markets will recover in due course, then there's a good case for taking advantage of the weakness in the share price by buying the stock.
Investors in PPG will be watching the industrial economy closely in order to see signs of strength. As cars get back on the road and automotive production picks up, PPG can expect to see some improvement in its automotive coatings outlook.
Meanwhile a pickup in architectural activity (DIY and professional) will also help. The downside to PPG's stock price appears to be limited by its substantive cash flow generation and stable market position, and the company looks well set to continue its run as a Dividend Aristocrat.