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4 Retail Building Products Stocks to Tap Solid Industry Trends
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The Zacks Building Products – Retail industry has been gaining from consumers continued focus on home renovation and maintenance activities. Moreover, favorable trends in the housing market provide an added advantage. Apart from these, players in the space are investing toward boosting omni-channel capabilities, as consumer’s inclination toward digital transactions continue to rise. Continuation of such positives is likely to benefit industry participants like The Home Depot, Inc. (HD - Free Report) , Lowe’s Companies Inc. (LOW - Free Report) , Fastenal Company (FAST - Free Report) and Lumber Liquidators Holdings, Inc. (LL - Free Report) .
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufactures of industrial and construction materials and distributors of wallboard and ceilings systems. Some of the industry participants offer products and services for home decoration, repair and remodeling, as well as in-home delivery and installation services. A few of the industry players provide products needed for construction, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, lawn and garden decor products. Some players also deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products Industry
Favorable Housing Market Conditions: The Retail Building Products industry prospects are closely tied to the conditions prevailing in the U.S. housing market. Markedly, low mortgage rates and high demand for residential property have been aiding the housing market, amid the coronavirus pandemic. Continued rise in consumers’ home buying activities is expected to bode well for players in the retail building products space.
Surging Repair & Remodeling Activities: Consumers have continued to invest in making homes an enjoyable and comfortable space. There has also been focus on making homes well equipped for work-from-home, remote schooling and entertainment needs. Moreover, do-it-yourself (DIY) projects for remodeling, decorating and maintenance of furniture and fixtures are being widely undertaken. Additionally, there has been a higher demand for gardening related tools as well as products related to stay-at-home activities such as paint and tool kits. Even though pandemic-led norms have been widely relaxed and outdoor movement has increased due to the rollout of vaccines, consumers continue to invest in homes. Such upsides, along with rapid urbanization trends, should keep aiding the top-line performance of the industry participants.
Focus on Digitization: Retail Building Products industry participants have been focusing on digitization and innovation. The industry participants have been on track with strategies to bolster omni-channel capabilities, with improved customer engagement. In fact, such prudent measures have been aiding them to meet the accelerated demand conditions, amid the pandemic. Companies are also ramping up their delivery operations in order to provide safe and swift services, especially to Professional (Pro) customer. The boom in digital transactions should continue to drive the top line of key industry players.
Rising Costs: Some home improvement retailers are incurring additional costs to provide enhanced payments and other benefits to employees amid the pandemic. Moreover, a few players have been witnessing inflationary pressure across product categories as well as higher transportation costs. Such increased costs are likely to put pressure on margins. Nevertheless, companies are adopting prudent savings measures to cushion the impact of such costs.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #73, which places it in the top 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the beginning of 2021, the industry’s earnings estimate for the year has increased 11.1%.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider for your portfolio. But before that, it’s worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector but has underperformed the Zacks S&P 500 over the past year.
The industry has gained 23.2% over this period compared with the broader sector’s growth of 17.3%. Meanwhile, the S&P 500 has moved up 35.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 19.32X compared with the S&P 500’s 21.35X. Further, the sector’s forward-12-month P/E stands at 27.79X.
Over the last five years, the industry has traded as high as 23.23X and as low as 16.03X, with the median being at 19.06X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Building Products Stocks to Keep a Close Eye on
Lumber Liquidators: This Richmond, VA-based company is a leading specialty retailer of hard-surface flooring materials and accessories. The company, which currently carries a Zacks Rank #1 (Strong Buy), has been gaining from its transformational plans and measures to boost financial flexibility. Higher demand for home improvement projects as well as growth in installation business has been supporting the company’s revenues. Additionally, the company has been undertaking prudent measures to boost consumers’ shopping experience in stores and online. Impressively, the stock has increased 58.4% in a year. Notably, the Zacks Consensus Estimate for 2021 earnings has remained stable over the past 30 days.
Lowe’s Companies: The Mooresville, NC-based leading home improvements retailer has been gaining from its sturdy U.S. home-improvement business along with advancements in the digital channel. The company is investing toward enhancing omni-channel retailing capabilities. It completed the installation of Buy Online Pickup in Store touchless lockers across stores. Lowe’s is also gaining traction with the Total Home strategy that includes providing complete solutions for various types of home repair and improvements needs. It is also undertaking measures to boost sales to DIY and pro customers. Impressively, shares of this Zacks Rank #2 (Buy) company have rallied 40.7% in a year. The Zacks Consensus Estimate for fiscal 2021 earnings has moved up 2.5% in the past 30 days.
Price and Consensus: LOW
The Home Depot: This Atlanta, GA-based home improvement retailer has been gaining from increased renovation and construction projects. The company is ramping up assortments and delivery systems to effectively meet market needs. Moreover, the company follows a flexible interconnected infrastructure, which aids in quickly adapting to changing customer preferences. This Zacks Rank #2 company is gaining from broad-based strength across stores and geographies as well as growing presence in the digital arena. The company is working toward boosting omni-channel functions such as curbside pickup and buy online pickup in store services with convenient pickup lockers. The stock has gained about 22.9% in a year. The Zacks Consensus Estimate for fiscal 2021 earnings has remained stable over the past 30 days.
Price and Consensus: HD
Fastenal Company: This Winona, MN-based wholesale distributor of industrial and construction products has been gaining from the installation of vending machines. Further, this Zacks Rank #3 (Hold) company is striving to boost onsite locations portfolio. The company has also implemented prudent cost control measures to curtail pressure stemming from rising operating expenses. Fastenal is also working toward expanding e-commerce presence. Notably, the stock has increased about 21.9% in a year. The Zacks Consensus Estimate for 2021 earnings has remained stable over the past 30 days.
Price and Consensus: FAST
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Image: Bigstock
4 Retail Building Products Stocks to Tap Solid Industry Trends
The Zacks Building Products – Retail industry has been gaining from consumers continued focus on home renovation and maintenance activities. Moreover, favorable trends in the housing market provide an added advantage. Apart from these, players in the space are investing toward boosting omni-channel capabilities, as consumer’s inclination toward digital transactions continue to rise. Continuation of such positives is likely to benefit industry participants like The Home Depot, Inc. (HD - Free Report) , Lowe’s Companies Inc. (LOW - Free Report) , Fastenal Company (FAST - Free Report) and Lumber Liquidators Holdings, Inc. (LL - Free Report) .
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufactures of industrial and construction materials and distributors of wallboard and ceilings systems. Some of the industry participants offer products and services for home decoration, repair and remodeling, as well as in-home delivery and installation services. A few of the industry players provide products needed for construction, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, lawn and garden decor products. Some players also deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products Industry
Favorable Housing Market Conditions: The Retail Building Products industry prospects are closely tied to the conditions prevailing in the U.S. housing market. Markedly, low mortgage rates and high demand for residential property have been aiding the housing market, amid the coronavirus pandemic. Continued rise in consumers’ home buying activities is expected to bode well for players in the retail building products space.
Surging Repair & Remodeling Activities: Consumers have continued to invest in making homes an enjoyable and comfortable space. There has also been focus on making homes well equipped for work-from-home, remote schooling and entertainment needs. Moreover, do-it-yourself (DIY) projects for remodeling, decorating and maintenance of furniture and fixtures are being widely undertaken. Additionally, there has been a higher demand for gardening related tools as well as products related to stay-at-home activities such as paint and tool kits. Even though pandemic-led norms have been widely relaxed and outdoor movement has increased due to the rollout of vaccines, consumers continue to invest in homes. Such upsides, along with rapid urbanization trends, should keep aiding the top-line performance of the industry participants.
Focus on Digitization: Retail Building Products industry participants have been focusing on digitization and innovation. The industry participants have been on track with strategies to bolster omni-channel capabilities, with improved customer engagement. In fact, such prudent measures have been aiding them to meet the accelerated demand conditions, amid the pandemic. Companies are also ramping up their delivery operations in order to provide safe and swift services, especially to Professional (Pro) customer. The boom in digital transactions should continue to drive the top line of key industry players.
Rising Costs: Some home improvement retailers are incurring additional costs to provide enhanced payments and other benefits to employees amid the pandemic. Moreover, a few players have been witnessing inflationary pressure across product categories as well as higher transportation costs. Such increased costs are likely to put pressure on margins. Nevertheless, companies are adopting prudent savings measures to cushion the impact of such costs.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #73, which places it in the top 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since the beginning of 2021, the industry’s earnings estimate for the year has increased 11.1%.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider for your portfolio. But before that, it’s worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector but has underperformed the Zacks S&P 500 over the past year.
The industry has gained 23.2% over this period compared with the broader sector’s growth of 17.3%. Meanwhile, the S&P 500 has moved up 35.7% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 19.32X compared with the S&P 500’s 21.35X. Further, the sector’s forward-12-month P/E stands at 27.79X.
Over the last five years, the industry has traded as high as 23.23X and as low as 16.03X, with the median being at 19.06X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Building Products Stocks to Keep a Close Eye on
Lumber Liquidators: This Richmond, VA-based company is a leading specialty retailer of hard-surface flooring materials and accessories. The company, which currently carries a Zacks Rank #1 (Strong Buy), has been gaining from its transformational plans and measures to boost financial flexibility. Higher demand for home improvement projects as well as growth in installation business has been supporting the company’s revenues. Additionally, the company has been undertaking prudent measures to boost consumers’ shopping experience in stores and online. Impressively, the stock has increased 58.4% in a year. Notably, the Zacks Consensus Estimate for 2021 earnings has remained stable over the past 30 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: LL
Lowe’s Companies: The Mooresville, NC-based leading home improvements retailer has been gaining from its sturdy U.S. home-improvement business along with advancements in the digital channel. The company is investing toward enhancing omni-channel retailing capabilities. It completed the installation of Buy Online Pickup in Store touchless lockers across stores. Lowe’s is also gaining traction with the Total Home strategy that includes providing complete solutions for various types of home repair and improvements needs. It is also undertaking measures to boost sales to DIY and pro customers. Impressively, shares of this Zacks Rank #2 (Buy) company have rallied 40.7% in a year. The Zacks Consensus Estimate for fiscal 2021 earnings has moved up 2.5% in the past 30 days.
Price and Consensus: LOW
The Home Depot: This Atlanta, GA-based home improvement retailer has been gaining from increased renovation and construction projects. The company is ramping up assortments and delivery systems to effectively meet market needs. Moreover, the company follows a flexible interconnected infrastructure, which aids in quickly adapting to changing customer preferences. This Zacks Rank #2 company is gaining from broad-based strength across stores and geographies as well as growing presence in the digital arena. The company is working toward boosting omni-channel functions such as curbside pickup and buy online pickup in store services with convenient pickup lockers. The stock has gained about 22.9% in a year. The Zacks Consensus Estimate for fiscal 2021 earnings has remained stable over the past 30 days.
Price and Consensus: HD
Fastenal Company: This Winona, MN-based wholesale distributor of industrial and construction products has been gaining from the installation of vending machines. Further, this Zacks Rank #3 (Hold) company is striving to boost onsite locations portfolio. The company has also implemented prudent cost control measures to curtail pressure stemming from rising operating expenses. Fastenal is also working toward expanding e-commerce presence. Notably, the stock has increased about 21.9% in a year. The Zacks Consensus Estimate for 2021 earnings has remained stable over the past 30 days.
Price and Consensus: FAST
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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