Recent economic data regarding new home starts, mortgage applications, and a variety of other data is beginning to show that the bottom in housing is here, or at least very close. This was all preceded by the enormous call buying in the Homebuilders ETF (NYSEARCA:XHB), which I highlighted various times on my website.
While many will say to start buying the homebuilder stocks, there still is a lot of risk there as much of the data is positive due to re-financing, and over-supply is still an issue. However, the home furnishing stocks are at record low valuations here, have bullish technical charts, and are seeing some bullish bets being placed in the options market. As housing prices begin to recover, many homeowners will look to refinance and use the extra savings to invest in home improvement projects and furnishing.
The home furnishing stocks are undervalued, and are short squeezes waiting to happen.
A quick overview of the names worth an investment in the group:
Leggett & Platt (NYSE:LEG): With a market cap of just over $2 billion, Leggett & Platt is the largest player in the group, and provides a range of products to the home including bedding and wire fixtures. Shares are near a major breakout level at $13.65, and with 11.7% of the float short, there could be a minor squeeze. There also was bullish buying of the April $15 calls earlier today. Shares currently trade just 0.5X sales and 1.25X book value, while recently affirming its 7.65% dividend yield. Furthermore, CEO David Haffner was actively buying shares in early March from a price range of $10.30 to $12.40, and accumulated more than 70,000 shares in Feb and March.
Acuity Brands (NYSE:AYI): Acuity designs and produces lighting fixtures for homes and commercial applications. Shares are currently trading just 7x trailing earnings, 0.47x sales, and 1.65x book value while also finding channel support on the chart. Profitability margins remain strong, and AYI is well positioned for a push in home improvement projects.
Ethan Allen Interiors (NYSE:ETH): Ethan Allen produces furniture for all types of uses including beds, dressers, tables, clocks, rugs, and everything else associated with the home. ETH was a $30 stock back in October and is now at $11.29, trading 0.34x sales, 9x trailing earnings, and 0.79x book value. With 25% of the float short, ETH could see a massive short squeeze.
Tempur Pedic (NYSE:TPX): Tempur Pedic is a producer of bedding products and is the most speculative play in the group. Shares trade only 9x trailing earnings, 0.57x sales, but there are debt concerns. More than 18% of the float is short, with 13 days to cover, and TPX has had a flurry of insider buying lately. The shares have major resistance at $8, but a move through that level could send shares on a 50% climb to $12.
Disclosure: no positions