A recent fit of virtuous (if misguided) housecleaning ended up
costing me $600, but what I learned in the process could provide
you with a chance to get in on a secondary play of a recovering
It started when I decided to clean under the refrigerator for
the first time in quite a while. I took my time sweeping up the
accumulated gunk, vacuuming the coils and disinfecting the unit
from top to bottom.
But when I plugged the fridge back in, the outside began
warming up and the inside stopped being cold. Some 24 hours and a
half-dozen Web searches later, I realized my mistake.
To get under the unit, I tilted it and rested it on a chair
while I cleaned. I'm not strong enough to hold the fridge up with
one hand and sweep with the other, but tilting it had burned out
the compressor, which moves the refrigerant through all those
now-clean metal coils. Whoops.
I decided it was time to buy a new fridge. Shopping for a new
unit took me to several home improvement stores -- and to my
surprise, they were all jammed. Appliances, tools, paint and
lumber -- every section was hopping, and much more than I'd seen
in years. Had everyone just broken something at the same
No. What I stumbled on was a boom in the home improvement
industry resulting from a recovering housingmarket .
In June, the monthly sentimentindex from the National
Association of Home Builders (NAHB), known as the HousingMarket
Index (HMI), moved into the positive for the first time since
April 2006. The HMI jumped 8 points to 52 (anything greater than
50 indicates positivesales conditions). NAHB ChiefEconomist David
Rowe has predictedhousing starts will top 1 million thisyear for
the first time since 2007.
In addition, investors flipped more than 136,000 single-family
homes during the first half of this year, according to research
firm RealtyTrac's mid-year flipping report. That's 19% higher
than the pace last year and 74% percent higher than in 2011 --
and it's on pace to exceed the nearly 233,000 houses flipped in
2006 at the height of the housing bubble.
What do these numbersmean ? The current housing boom isn't
just the work of homeowners -- the pros are back. And what do the
pros do? Spendmoney to freshen up a property and then resell
The Home Improvement Research Institute (HIRI) sees the same
trend. HIRI expects total home improvement sales to increase 4.3%
this year, to $287.3 billion, and another 5.7% next year.
Next, I looked at several home improvementstocks to see
whether those spending numbers were translating into improved
It sure looks that way:
Lumber Liquidators (
is up more than 160% in a year, and the slowest growth in the
sector was still over 30%. In my opinion,investing in this sector
provides a prudent and lucrative way to tap into the recovery in
the housing market. Here are a few of my favorites:
recently raised its full-yearearnings forecast for this year. A
great "made in America" buy, Whirlpool is also seeing a sales
rebound in Europe. If Whirlpool can get operating margins above
6% -- where they were a decade ago -- WHR could approach $200 by
StanleyBlack & Decker (
announces its earnings expectations on July 26, and I would wait
until after that to buy as I expect SWK will dip on slightly
contractedrevenues and earnings per share. However, thisstock
could be a really stableinvestment . It yields a 2.5%dividend ,
which has grown by about 6% annually over the past decade.
has been hitting 52-week highs this month, but I think it's got
room to grow because it has been expanding its margins and moving
ahead with expansion plans. Williams-Sonoma also continues to
increase its direct-to-consumer revenues as a percentage of its
Risks to Consider:
The housing sector is cyclical: HIRI forecasts spending will
level out in 2015 and 2016. Therefore, home improvement companies
are not set-it-and-forget it stocks for the most part, and you
will want to revisit your portfolio in a year to gauge whether to
take your profits and pull out before the sector turns.
Action to Take -->
While the entire sector showsupside , my favorites are Whirlpool,
Williams-Sonoma and Stanley Black & Decker because they have
significantly lower price-to-earnings ratios than their peers --
which tells me they're stillundervalued -- andoffer a
highdividend yield . Dividend yields are attractive not only
because theyput additional money in the investor's pocket -- they
also indicate a high level of fiscal responsibility.
In the interest of full disclosure, I ended up buying an Amana
Home Depot (
because they had the best price, plus free home delivery and
takeaway of the old unit. I paid extra for awarranty in case I
get it in my mind to do any more cleaning.
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