Chris B

Four Home Furnishing Stocks for a Housing Recovery

1) Furniture/fixture manufacturing and sales is rather capital intensive. Those trailing earnings PE's could quickly turn negative on even small revenue dips if margins are low enough. There are lots of other industires with single-digit PE's and better opportunities for gain in the future.

2) These companies represent the high-end luxury range of the market. Yet, I'd say the household consumption binge of the early 2000's is over. The consumer savings rate will revert to 10%, already at 3%, up from 0%. Those $2000 designer chairs, $200 light fixtures, and $1200 mattresses will be the first thing gone from the budgets of shell-shocked consumers who are more focused on paying down record debt levels than adding new debt. To the extent new furnishings/fixtures are necessary, consumers will look to cheap Chinese stuff.

3) We're coming out of the biggest housing and debt binge in history, and I'd say the market is oversupplied with relatively new furnishings. Foreclosure and downsizing trends are inflating the used market. Many of the brimming self-storage facilities are now offering garage sales to their customers.

4) Unemployed people don't buy luxury household items. The economy will turn around long before the unemployment rate improves, and perhaps even as unemployment gets worse. This means that lots of other industries will experience earnings gains long before household luxury items.

5) Demographic graying and the depletion of retirement savings means that the glut of household furnishings and fixtures will be in use for a long time rather than being replaced. Demand will not reach 2006 levels for years.