Federal Reserve ChairmanBen Bernanke managed to spook the
markets yet again last week. Like many investors, I watched his
press conference and then witnessed themarket 's reaction
asstocks slid south, trailingred .
Investors andanalysts are concerned that rising interest rates
threaten to curtail the housing boom that's helped drive the
economic rebound. This $5 trillion segment of the U.S.economy is
often considered abellwether for the economy as a whole.
In the following chart tracking the S&P 500 Homebuilding
Sub-IndustryIndex , you can see the market's reaction after
Bernanke's statements on June 19:
But while homebuilders have seen big drops in share price over
the past few days, some home-improvement businesses have remained
In fact, the home-improvement company I'm going to tell you about
has seen its share price rise more than 11% in the past five
Most investors have probably never heard of
Jewett-Cameron Trading Co. (Nasdaq: JCTCF)
, but this $41 million company'sshares have gained more than 170%
in the pastyear .
Jewett-Cameron sells wood products and specialty metal products
(such as greenhouses and dog kennels) both directly to customers
and as a distributer to big-box home improvement retailers like
Home Depot (
. Through various subsidiaries, the company also sells specialty
tools and seed products.
The company'ssales have been growing at a brisk clip.
Jewett-Cameron reported in February that its sales had grown 21%
in its most recent quarter from the same period last year, to
Better yet, these increases in sales andrevenue continue to find
their way back to shareholders.
The company quadrupled itsearnings per share (
) between 2011 and 2012, from 22 cents a share to 89 cents. And
over a trailing 12-month period, this trend has continued, with
EPS rising to 95 cents a share.
One of the forces behind Jewett-Cameron's success is Donald
Boone, who has led the company since 1987. AsCEO , Boone took
home only $37,000 in compensation last year, down from $39,000
the year before.
Instead of high salaries, Boone and his management team have
instead aligned their interests with shareholders by keeping
management costs down. Companyinsiders also own 82% of the
company'soutstanding shares , which means they have a vested
interest in seeing both share prices and EPS continue to rise.
There is somespeculation that Boone, 72, might be near
retirement. This fact alone could position Jewett-Cameron as a
ripeacquisition target.Private equity firms love companies that
are "bite-size," have nodebt and are positioning toward a change
in management. In all these respects, Jewett-Cameron fits the
Either way, future prospects for the company continue to look
good. In spite of rising interest rates, the housing recovery has
shown little sign of slowing down.
The National Association of Realtors recently reported a 4.2%
rise in existing home sales from April to May and a total
year-over-year increase of 12.9%. The National Association of
Homebuilders' monthly confidence gauge just hit its highest level
in seven years, and new home constructions are up 6.8%.
These indicators all point to continued demand for
Risks to Consider:
Jewett-Cameron is a small company, and its top 10 customers
currently represent 65% of total sales. If these customers were
lost and could not be replaced, the company could experience a
significant decrease in sales and profitability.
The company does not pay adividend and is therefore more suitable
for growth investors
Action to Take -->
Jewett-Cameron is a great company that has been largely
overlooked byWall Street and other institutional investors. While
cautious investors may want to wait for the dust to settle
afterthe Fed 's recent announcement, Jewett-Cameron offers solid
value at today's prices.
Onenote of caution: Shares arethinly traded (the averagevolume is
less than 8,000 shares a day), so be sure to place alimit order
and be patient to get the best price possible.