Investors generally don't think of staples when they look for housing plays, but we have been highlighting a couple - here's a quick review.
One of our favorite names coming out of this year's CAGNY conference was Newell ("CAGNY Day 3 – Some Good Stories (IFF and AVP), but We Like NWL" - 2/21). The stock closed at $23.23 that day, and is +10% in less than a month. We also took the opportunity earlier this week to highlight the name on Hedgeye's flash call related to our macro theme of "Housing's Hammer".
Certainly NWL has benefitted from a rotation into smaller cap, lower yield names within the market, but we still see upside to EPS (primarily in the second half of fiscal '13) and the continued opportunity for rerating under our "bad companies getting better" thesis. About 1/3 of NWL's product portfolio is levered to housing - the professional tools business and segments that sell fixtures, blinds and drapes, specifically. The company's free cash flow (FCF) profile should, over time, provide for a robust return of cash to shareholders through dividends and share repurchases. We continue to see upside toward $30 per share.
Some other names in our world that we have spoken about less but have some leverage to the housing theme are Spectrum Brands (SPB). SPB recently acquired a housing related business from Black & Decker - residential locksets and faucets, among the products. This is an interesting name where we think doing the work is worth the time.
Scott's Miracle-Gro (SMG) is a little more of a reach, but gardens and lawns are primarily found around houses, so....seriously, increases in home values are likely to result in some catch up in maintenance work around the home. Further, 2012 was a tough year for SMG due to drought conditions across much of the U.S., so pray for rain.
After that, it's pretty slim pickings - Jarden (JAH) has some leverage with its home appliance business and the stock is still cheap on P/E and FCF, but we wouldn't suggest that it is our favorite management team in the space.
Bottom line, we think investors should stick with NWL and do the work on SPB (we are) if you believe that Hedgeye is going to be right on housing.
Have a good weekend,
HEDGEYE RISK MANAGEMENT, LLC