In the depths of the last recession, U.S. housing starts plunged to their lowest levels in more than 50 years. The subsequent recovery has been unusually gradual — and gaining momentum, observes Richard Moroney, editor of the small cap-oriented advisory service, Upside Stocks.
Mortgages rates remain historically low. The labor market and consumer confidence are solid. These circumstances could drive up housing starts in 2020. Here are three recommended plays on homebuilding products.
BMC (BMCH) supplies lumber, doors, windows, and wall panels to several major U.S. homebuilders. Its customer base is broad, with no single company generating more than 6% of annual sales. BMC operates in 19 states, primarily in the South and West regions.
For the 12 months ended September, BMC grew per-share profits 16% and operating cash flow 90%, despite 2% lower sales. Revenue growth is expected to bounce back in 2020, with the consensus projecting a 7% gain.
Per share profits are expected to climb 8% in 2020. Analysts are becoming increasingly bullish on BMC’s growth prospects, with consensus estimates steadily rising over the past 90 days for both earnings and sales.
The shares trade at 15 times estimated 2020 earnings, below the median of 18 for S&P 1500 Index industrials stocks. BMC is rated Buy.
Commercial builders hire Installed Building Products (IBP) to install a wide range of products, including insulation, garage doors, rain gutters, shower doors, and closet shelving.
The company delivered solid December-quarter results. Per-share earnings increased 28% to $0.92, or $0.05 above the consensus.
Revenue grew 14% and exceeded expectations, reflecting organic growth of nearly 10%. Adjusted gross profit margin rose two percentage points to 29.9%.
A leading installer of residential insulation and building products, the company is benefiting from acquisitions and a healthy housing market.The stock is rated Buy.
As the biggest purchaser and distributor of insulation in the U.S., TopBuild (BLD) uses its national scale to leverage its buying power. The company also installs rain gutters, windows, and garage doors.
Its shares look timely, scoring above 85 in Quadrix for Momentum, Quality, Earnings Estimates, and Performance. The strong housing market is boosting results, given that 80% of TopBuild’s sales come from residential builders.
In the December quarter, TopBuild’s per-share earnings jumped 23% to $1.48, outstripping the consensus by $0.06. Sales increased 4% but were below expectations. The company recently acquired Cooper Glass and Hunter Insulation, adding roughly $19 million of annual revenue. The stock is a Best Buy.