Paint the Town Green with VAL

The housing market has been improving all year, and what was once a sector to steer clear of until this year has been one of the best-performing sectors in 2012. Homebuilder stocks such as PulteGroup (NYSE:PHM) and Lennar Corp. (NYSE:LEN) have enjoyed banner years, and home improvement stocks such as Home Depot (NYSE:HD) and Lowes (NYSE:LOW) also have enjoyed extremely strong years.

Another home-related group painting the town green with profits is paint stocks.

Industry powerhouse Sherman-Williams (NYSE:SHW) shares are up 67.5% year-to-date, while PPG Industries (NYSE:PPG) shares have surged 57.9% in 2012. Both of these stocks are strong, and both represent good momentum plays for investors, but the company in this space I like best is Valspar Corp. (NYSE:VAL).

Shares of the paint, varnish and industrial coatings firm are up 58.7% year to date, having climbed steadily throughout the year on a series of strong earnings reports. Most recently, Valspar beat Street expectations with fiscal Q4 earnings that climbed 2% to 86 cents a share. That showing bested EPS estimates by a penny a share, even as sales figures slowed by 2% to $1.02 billion.

For the full year, Valspar saw a 24% jump in profits. Management also confirmed its outlook for fiscal 2013, expecting EPS of $3.65 to $3.85 a share, which represents growth of 11% to 17% over the stellar 2012 showing.

In mid-December, Valspar painted a new coat of dividends to shareholders, upping its quarterly payout 15% to 23 cents per share from 20 cents. The move was the 35^th consecutive year of an increased dividend to VAL shareholders.

For traders, the chart here shows strong momentum, and a potential breakout on new 52-week highs. I suspect that the housing market improvement will continue in 2013, and that means more upside for VAL going forward.

I like VAL shares for another 15% gain during the next several months, which would put your price target at $71.71. To protect your position on the downside if the paint spills lower from here, set a stop-loss at $57.37, which is 8% below the Dec. 21 close of $62.36.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.