While the housing industry is still a bit shaky, the remodeling industry is fairly strong. The Remodeling Market Index was 53 in the first quarter of 2014, according to the National Association of Home Builders.
An RMI north of 50 indicates that more remodelers report market activity is higher, compared to the prior quarter, than report it is lower.
The Wall Street Journal reports that the number of people employed in the business of remodeling homes rose 6% in 2013, and that residential remodeling jobs are projected to rise by 7% in 2014.
Solid demand for remodeling products and services means that businesses catering to this market should benefit from this demand.
Two companies in particular are well worth considering as investments. This is not just because they benefit from the remodeling market. It is also because one of my guru strategies also thinks these are strong companies with well-priced stocks. They are Whirlpool (WHR) and Lumber Liquidators (LL).
Whirlpool bills itself as the world's leading global manufacturer and marketer of major home appliances. Its roster of brand names includes its namesake Whirlpool, Maytag, KitchenAid, and Jenn-Air, among others. Lumber Liquidators operates a chain of retail stores in 46 states that carry hardwood, engineered wood, laminate, cork and other flooring.
Both companies are favored by my Peter Lynch-based guru strategy. If you are unfamiliar with my approach to investing, it is based on the idea that reinventing the wheel -- or in this case, successful investment strategies -- makes no sense. It is better to take proven strategies and use them to my advantage.
To this end, I computerized a dozen strategies of stellar investors, including Warren Buffett, David Dreman, Benjamin Graham, and the great mutual fund manager, Peter Lynch.
The Lynch strategy focuses on the P/E/G ratio, which is the well-known price-to-earnings ratio, but with growth thrown in as an additional factor. It enables investors to know how much they are paying for growth, which is a key component to every savvy investor's analysis.
A P/E/G of 1.0 or less is acceptable. Whirlpool's yield-adjusted P/E/G comes in just under the wire at 0.99, while Lumber Liquidator's is 0.92. Debt is another factor thrown into the mix. Whirlpool's debt-to-equity ratio is an okay 64%, while Lumber Liquidator's is a cannot-be-beaten 0%.
Both companies are in a good position to benefit from the remodeling market (while Whirlpool can also benefit from a resurgent new home real estate market). These are proven companies with strong market positions and excellent track records. They could be solid additions to most anyone's portfolio.