A posse of smaller-cap building products companies are releasing earnings next week.
Trex (TREX), Ply Gem (PGEM), TopBuild (BLD), Regal-Beloit (RBC) and Nortek (NTK) will let us monitor the health of the supply chain in housing components and HVAC into this summer. These little-known companies serve the repair/replacement and new-build housing sector and are mostly focused domestically.
The all-important summer selling season is upon us. Housing stock is still tight in certain areas, especially at the entry level. Rates remain favorable. Potentially higher wages -- especially for younger middle-class purchasers ¿ could yield incremental purchasing power. But housing prices remain stiff in many areas.
Despite inevitable volatility, I think the Millennials will keep a bid under housing demand for some time, overall. I do not think we are near peak housing demand either. Household formation should continue apace over the next few years. American adults in their 20s today compare in number to that of the Boomers. And they are moving out of the basement.
Another secular thought: those McMansions and sprawl that the housing bubble brought to suburbia more than a decade ago? Those houses are getting old. Tastes and designs have changed, dramatically in some cases. Kitchens and baths are in dire need of remodeling. Clean and contemporary lines are the flavor today. Think about an Apple Store. Nobody likes the Tuscan Rooster look anymore. It is tired.
You know who you are.
Energy-efficient retrofits are desired and demanded, though still not readily available in the housing stock of the past. Consumers are increasingly paying attention to the energy efficiency of appliances, furnaces, insulation and heating and air conditioning. Whirlpool (WHR), A.O. Smith (AOS), Lennox International (LII) and Owens Corning (OC) deserve honorable mention here.
Watch these smaller companies reporting next week and keep one eye on the better quality as well.
Mohawk Industries (MHK), Quanex Building Products (NX) and Beacon Roofing Supply (BECN) make my list, along with the backdoor energy-efficiency quartet mentioned above. All of these stocks should create nice value in time, especially if accumulated ratably on market weakness. They possess distinct end-market expertise and are operated by the best and the brightest.
Also worth highlighting is the price action in Nortek (NTK) shares since last summer's failed acquisition attempt by United Technologies (UTX). Then, the shares were trading near $90. They sit around $47 today.
Nortek is a niche supplier of HVAC solutions and controls for both residential and commercial customers. This stock sits under the radar, while other HVAC-related stocks like Lennox International (LII), AAON (AAON) and Watsco (WSO) are trading at or near all-time highs.
As I write this piece, I wonder why I do not own any of these stocks.