3 Household Stocks to Renovate Your Portfolio
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Typically, when the market gurus speak about playing the home improvement stocks, Home Depot and Lowe’s, with market caps of $105 billion and $43 billion, respectively, are at the top of the watch list. They have long track records of share price appreciation and consistent dividend payouts. And, in the event a natural disaster occurs that wipes out entire neighborhoods, one would think you can’t beat these two companies. However, I believe 3 other home improvement companies can be just as good, if not better, plays in this sector.
Tile Shop Holdings
Ceramic tile, on both a dollar and square foot basis, has nearly a 25% market share of installed floor covering products, second only to carpet. Soaring over 38% since its IPO in August 2012, Tile Shop Holdings (NASDAQ: TTS) reminds me a lot of Lumber Liquidators. I mentioned Lumber Liquidators a few months ago in my articl: Improve Your Portfolio With Home Improvement. Since that particular article, the lumber company has gone up over 36% in share price. In my opinion, the only difference between Tile Shop and Lumber Liquidators is that one sells tile and one sells wood.
Tile Shop currently is in expansion mode, building up its stores, with 68 across 22 states – a 28% year-over-year unit growth. Their recent 4th quarter 2012 results show all the signs of a successfully growing company, with a 9.8% increase in same store sales, and net sales increasing 22.5% overall. Tile Shop also recently completed their 4th distribution center, which should help 2013 growth and reduce shipping expenses while improving logistics.
What I like about Tile Shop the most is that there are no real competitors in the market. Tile Shop sells its products through its own supply chain and doesn’t rely on bigger retailers to sell their own products. Tile also has distinct advantages versus other floor coverings like hardwoods. Tile requires less maintenance, is easier to replace damaged tiles, cheaper than premium woods on the low-end with a price range of $1-$20 per tile versus $8-$14 per floor board, is more moisture resilient, and has far more customizable patterns to meet individual tastes.
I would say, however, that Tile Shop is a long-term play. As they are expanding their footprint across the US, their net income will inevitably take a hit in the short-term. Net income went negative in 2012 (-$46.9 million) versus 2011 ($31.4 million). Unlike many speculative IPOs of recent years, I believe Tile Shop fits the mold of long-term success.
There are over 10.6 million swimming pools in the US today. $6,243 is the average cost to build an above ground pool, while $21,919 is the average cost to build an in-ground pool. More importantly, 17% people urinate in pools, and 35% of people jump into public pools without showering first. What does this all mean? This means that Pool Corporation (NASDAQ: POOL), a wholesale distributor of swimming pool supplies, equipment, and related leisure products, is swimming in cash. When it costs an average of $87.50 just in pool chemicals per month for a typical pool, this is a company that has no problem with repeat customers.
Earlier in March Bloomberg mentioned the ‘frugality psyche’ in the minds of home owners today. I believe this only helps Pool because home owners are trying to improve the value of their homes by installing a pool. It also is a long-term investment, as pools provide years of entertainment for everyone in the family and can be an attraction point when selling a home later down the road. The company known for selling “everything but the water” has over 300 locations worldwide, and the stock is up over 30% the past 12 months and over 144% the past 5 years.
Net sales for the year ended Dec. 31, 2012, increased 9% to a record high of $1.95 billion. EPS also jumped 23% to a record $1.85/share. 2013 guidance is expected to break records again, with EPS estimates by the company for $2.13 to $2.23/share. Furthermore, the company is in hiring mode, which is somewhat rare in today’s job market, which to me only screams that investors should look to jump into the water.
A global coating and paint manufacturer distributor, Valspar Corporation (NYSE: VAL) can possibly paint a different picture for your portfolio. The stock is up over 30% the past 12 months and over 214% the past 5 years, not including dividends. I prefer Valspar over Sherwin-Williams only because of the potential to grow more since its market cap is nearly a third that of Sherwin-Williams and has a smaller P/E ratio.
Valspar has been getting a bad rap lately after missing earnings in their most recent quarter, resulting in a 1.3% decline in net income. While profit margins have been dropping slightly in recent quarters, it is still higher than the company's 5 year average of 4.16%. In December 2012, Valspar purchased Ace Hardware Corporations’ paint manufacturing business for $34.8 million. Earlier this month former Best Buy CFO James Muehlbauer was named the new CFO of Valspar. I think these changes show that the company is putting itself in a position for long-term success while staying true to what has allowed them to exist for the past 200+ years.
Michael Carter has no position in any stocks mentioned. The Motley Fool owns shares of Tile Shop Hldgs . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!