In Housing Rebound, Makers of Faucets and Cabinets Top Buildersby and
More people feel confident enough to remodel their homes
Lower prices for nickel, copper offset higher labor costs
As a recovery in the U.S. housing market gains footing, the biggest beneficiaries turn out to be the makers of kitchen cabinets, door locks and bathroom fixtures, not companies that actually build the homes.
Profits have soared at American Woodmark Corp.; Masco Corp., whose brands include Delta faucets and Behr paint; and carpet producer Mohawk Industries Inc. Prices for raw materials such as copper and nickel, are falling enough to offset higher labor costs while sales are up as builders outfit more homes.
“Building-product and remodeling companies are attractive ways
to tap into the recovery,” said Garik Shmois, an analyst with Longbow Research. “They are seeing fast margin expansion due to lower raw material costs while also benefiting from the improved demand.”
The companies that feed into the housing industry have been a bright spot on stock indexes dragged down by emerging-market weakness, the impact of lower oil prices on energy profits and the overhang of an anticipated increase in U.S. interest rates.
After holding back since the 2008-2009 recession, consumers now feel confident enough in the economy to fix up their homes, Shmois said.
“They are starting to spend the money that they have deferred on the things like upgrading their kitchens, upgrading their baths,” he said. “That’s where a lot of these remodeling companies really participated.”
The National Association of Realtors predicts the sale of 5.29 million previously owned homes this year, the most since 2006. Existing home sales are about at their highest levels since 2007, while new home sales are still well below their peak.
The Standard & Poor’s Supercomposite Building Products Industry Index is up 14 percent this year through Thursday compared with a 9.2 percent gain for the Standard & Poor’s Homebuilding Index.
Shares of American Woodmark, which manufactures kitchen and bathroom cabinets, jumped 65 percent this year through Thursday and Mohawk surged 24 percent. NVR has performed the best of house builders, climbing 24 percent. PulteGroup, the third-largest homebuilder, dropped 7.6 percent.
Nickel, used in stainless steel, has declined 34 percent this year and copper has fallen 18 percent.
The home-improvement recovery has at least two more years to go, Shmois said. That will help drive stocks even after the large gains this year that have pushed their price-to-earnings ratio higher. PGT Inc., which produces residential windows and doors, has jumped 35 percent this year and its price-to-earnings ratio has risen to 26. That compares with 17 for the S&P 500 Index average.
“Housing is more attractive right now because it’s purely U.S.-based and has no import, currency and global threat,” Shmois said. “Supply of homes for sale remains tight, the labor market continues to gradually improve, demographic trends are improving too.”