At "Home" with a Small Cap Trio

08/08/2017 2:50 am EST


Richard Moroney

Editor, Dow Theory Forecasts

In a special report on fast growing stocks trading a good prices, small cap expert Richard Moroney—editor of Upside—highlights a trio of issues in housing niches: a property title firm, a housing construction play and a maker of manufacturing homes and RVs.

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First American Financial (FAF) traces its roots to 1889, when the company began servicing property titles. Today, the company is the second-largest provider of title insurance, with a nearly 27% market share. First American offers home-warranty insurance, investment-advisory services, and banking.

Results depend on new mortgage originations and refinancing activity. Also, the level of interest rates impacts investment income. In Quadrix, First American earns the maximum Overall score of 100.

In the June quarter, per-share earnings increased 18% to $1.09, handily topping the consensus of $0.93. Revenue rose 7%, reflecting improved activity in commercial real estate.

Gross profit margin jumped nearly two percentage points to 15.4%. Analyst estimates are rising, with the consensus for 2017 projecting growth in earnings per share of 13% to $3.33, up from the $3.11 expected three months ago. First American is being initiated as a buy.

Louisiana-Pacific (LPX) is leveraged to the new construction, repair, and remodeling of houses and nonresidential buildings. The company makes framing, siding, and structural wood panels sold in North America, Chile, and Brazil.

A healthy housing market, reflecting pent-up demand from younger home buyers and confidence among U.S. homebuilders, bodes well for growth. New products, favorable pricing, and acquisitions should help sustain sales.

For the June quarter, Louisiana-Pacific reported per-share earnings of $0.58, up from $0.28. Revenue rose 19%. For 2017, analyst estimates call for per-share profit growth of 91%, to $1.70, on a revenue increase of 16%. The stock is being added as a buy.

Patrick Industries (PATK) sells building products and interior components, including countertops and fixtures, primarily to makers of recreational vehicles (RVs) and manufactured homes.

The company is benefiting from robust demand for campers and motorhomes. Patrick has delivered consistent growth since 2010, reflecting acquisitions, expansion into new markets, and product launches.

Patrick has posted 23 consecutive quarters of double-digit revenue growth. In the June quarter, sales advanced 29%. Sales to the RV industry, which represented 69% of overall revenue, increased 23%. Per-share earnings were $1.28, up 15% and above the consensus of $1.15.

Analyst estimates for 2017 project per-share profit growth of 16% on a sales gain of 20%. Patrick Industries is being initiated as a buy.

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