Get on the Renovation Cycle

09/28/2013 6:00 am EST

Focus: STOCKS

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

As part of the housing boom, there are several related industries that are booming as old homes are being fixed up and Elliott Gue has a stock you should examine now.

SPEAKER:   My guest today is Elliot Gue.  Hi Elliot, and thanks for being here.

ELLIOT:   Thanks for having me.

SPEAKER:   You know the housing market has just been incredible,

ELLIOT:   Right.

SPEAKER:   All over the country, even in the little town that I live in in Tennessee,

ELLIOT:   Right.

SPEAKER:   We’ve seen major improvements, and the renovation cycle, which you’ve written about recently seems to really be on the upswing too because people are buying older homes.

ELLIOT:   Sure.

SPEAKER:   And they’re having to do replacements.

ELLIOT:   Absolutely.

SPEAKER:   So, in some of the big box retailers like Lowe’s and Home Depot have done very, very well, but you’re in some other types of companies too.

ELLIOT:   Yeah, absolutely, I mean the renovation cycle, I think has had a long tail on it.  I think there’s a lot of pent up demand there.  Obviously people don’t want to make major renovations on their home if they think that underwater on their mortgage.

SPEAKER:   Right.

ELLIOT:   I mean, you also had household formation in the US, the number of new households created go way down over the last few years during the housing crisis.

SPEAKER:   Sure.

ELLIOT:   A lot of kids stayed at home with their parents,

SPEAKER:   Oh heck.

ELLIOT:   A lot people stayed renting with a roommate rather than getting their own home.

SPEAKER:   Um hmm.

ELLIOT:   Obviously I think that you know both the child and parent would be happy to change that.

SPEAKER:   Right.

ELLIOT:   And you’re starting to see that.  You’re starting to see household formation rise again.

SPEAKER:   Um hmm.

ELLIOT:   I think that’s driving a demand for renovation as well.

SPEAKER:   Um hmm.

ELLIOT:   So all that pent-up demand is helping companies like Home Depot and Lowe’s.  Another company I’ve been looking at a lot and just recently recommended is Whirlpool. 

SPEAKER:   Um hmm.

ELLIOT:   They make home appliances. 

SPEAKER:   Right.

ELLIOT:   They’re behind other brand names as well, Maytag, Amana, Jenn-Air.  They make everything from dishwashers and stoves to air conditioners, all sorts of major home appliances.  In fact they own the largest share of the US market, about 40 to 45% of the US market is Whirlpool brands.

SPEAKER:   Um hmm.

ELLIOT:   Obviously they were hurt during the housing crisis, but now they’re really seeing a lot of growth and demand for these appliances as people renovate old homes, replace the appliances, and as people just look to upgrade their kitchen.

SPEAKER:   Sure.

ELLIOT:   In fact, recently they reported earnings, and they raised their demand estimates for demand growth in the US from 2 to 3% this year all the way up 5 to 8%.

SPEAKER:   Wow.

ELLIOT:   So a big jump in demand.

SPEAKER:   Um hmm.

ELLIOT:   The US accounts for about 55 or 60% of their business.  The other major place is Brazil.  Brazil actually recently instituted a government program to help drive demand for renovations.

SPEAKER:   Hmm.

ELLIOT:   So that’s helping them out as well.  In addition to that, one of their major competitors down there went bankrupt.

SPEAKER:   Oh yeah.

ELLIOT:   So they’re actually taking a lot of market share from them.

SPEAKER:   Um hmm.

ELLIOT:   Both of their main markets are doing very well right now, and I think that’s likely to continue.  I think that’s just a solid company to buy now.

SPEAKER:   Yeah.  And do they pay a dividend also.

ELLIOT:   Very small dividend right now. 

SPEAKER:   Um hmm.

ELLIOT:   It’s about one and a half to 2% range.  They will probably continue to boost that over time, and they have been buying back stock.  They bought about, they’ve bought back quite a bit of stock in the most recent quarter.  They’ve indicated that they’ll probably continue that program going forward.

SPEAKER:   Um hmm.  Super.  Well thank you so much, Elliot.

ELLIOT:   Thanks for having me.

SPEAKER:   And thanks for joining us at the moneyshow.com video network.

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