My Top Household Durables Stocks For 2015

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Includes: CAA, CVCO, ETH, FLXS, GRBK, HAR, HOFT, HOV, IRBT, KBH, LEN, MHK, MHO, PHM, RYL, TOL, TPH, TPX, UEIC, WHR, WLH
by: Stan Stafford

Summary

In this series of articles, I will be reviewing individual industry sectors and selecting my favorite stock picks for 2015.

For Part 30, I will be reviewing the Household Durables industry sector, taking a look at revenue/earnings growth, and the overall financial stability of the companies.

Out of this group of reviewed stocks, my top picks for 2015 are Flexsteel Industries and Green Brick Partners.

Overview

In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 30, in determining my favorite stocks in this sector for 2015, I will review the following Household Durables stocks:

  • Bassett Furniture Industries (NASDAQ:BSET)
  • Beazer Homes USA (NYSE:BZH)
  • Blyth (NYSE:BTH)
  • Cavco Industries (NASDAQ:CVCO)
  • CSS Industries (NYSE:CSS)
  • DR Horton (NYSE:DHI)
  • Dixie Group (NASDAQ:DXYN)
  • Ethan Allen Interiors (NYSE:ETH)
  • Flexsteel Industries (NASDAQ:FLXS)
  • Garmin (NASDAQ:GRMN)
  • Green Brick Partners (NASDAQ:GRBK)
  • Harman International Industries (NYSE:HAR)
  • Helen of Troy (NASDAQ:HELE)
  • Hooker Furniture (NASDAQ:HOFT)
  • Hovnanian Enterprises (NYSE:HOV)
  • Installed Building Products (NYSE:IBP)
  • IRobot (NASDAQ:IRBT)
  • Jarden (NYSE:JAH)
  • KB Home (NYSE:KBH)
  • La-Z-Boy (NYSE:LZB)
  • Leggett & Platt (NYSE:LEG)
  • Lennar (NYSE:LEN)
  • LGI Homes (NASDAQ:LGIH)
  • Libbey (NYSEMKT:LBY)
  • Lifetime Brands (NASDAQ:LCUT)
  • M.D.C. Holdings (NYSE:MDC)
  • M/I Homes (NYSE:MHO)
  • Meritage Homes (NYSE:MTH)
  • Mohawk Industries (NYSE:MHK)
  • Nacco Industries (NYSE:NC)
  • Newell Rubbermaid (NYSE:NWL)
  • PulteGroup (NYSE:PHM)
  • Ryland Group (NYSE:RYL)
  • Skullcandy (NASDAQ:SKUL)
  • SodaStream International (NASDAQ:SODA)
  • Standard Pacific (SPF)
  • Tempur Sealy International (NYSE:TPX)
  • Toll Brothers (NYSE:TOL)
  • TRI Pointe Homes (NYSE:TPH)
  • Tupperware Brands (NYSE:TUP)
  • Universal Electronics (NASDAQ:UEIC)
  • WCI Communities (NYSE:WCIC)
  • Whirlpool (NYSE:WHR)
  • William Lyon Homes (NYSE:WLH)
  • Zagg (NASDAQ:ZAGG)

Step 1

The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative or flat (less than 3%) earnings growth over the past five years:

  • Bassett Furniture Industries
  • Beazer Homes USA
  • Dixie Group
  • Garmin
  • Installed Building Products
  • Leggett & Platt
  • LGI Homes
  • Libbey
  • Lifetime Brands
  • M.D.C. Holdings
  • Nacco Industries
  • Skullcandy
  • SodaStream International
  • WCI Communities

Step 2

I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 3%) growth or saw a decline in revenue over the past two years. These stocks include:

  • Blyth
  • CSS Industries
  • Tupperware Brands
  • Zagg

Step 3

My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 2 to focus more specifically on fairly valued/undervalued stocks. These stocks included:

  • DR Horton
  • Helen of Troy
  • Jarden
  • La-Z-Boy
  • Meritage Homes
  • Newell Rubbermaid

Step 4

The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.

  Fundamental Score Value Score
Cavco Industries 6 7
Ethan Allen Interiors 7 6

Flexsteel Industries

9 10
Green Brick Partners 6 10
Harman International 8 6

Hooker Furniture

8 8
Hovnanian Enterprises 3 NA
IRobot 9 10
KB Home 6 10
Lennar 5 8
M/I Homes 4 9
Mohawk Industries 7 9
PulteGroup 3 10
Ryland Group 6 9
Standard Pacific 3 10
Tempur Sealy 8 5
Toll Brothers 4 10
TRI Pointe Homes 4 10
Universal Electronics 9 3
Whirlpool 9 2
William Lyon Homes 3 10

To determine the best stocks for 2015, I'm only taking into consideration stocks that have combined scores of 15 or higher. Doing this left me with the following remaining stocks:

  • Flexsteel Industries
  • Green Brick Partners
  • Hooker Furniture
  • IRobot
  • KB Home
  • Mohawk Industries
  • Ryland Group

Step 5

My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. However, none of the remaining stocks saw a decline in book value during this time period.

Step 6

I then looked at the remaining stocks and only included stocks with earnings yields of 5% or higher in my final analysis. The stocks that had earnings yields lower than 5% are:

  • IRobot
  • Mohawk Industries

Step 7

My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.

Flexsteel Industries

In its last quarter, the company reported a 2% increase in revenue and an increase in earnings per share from $0.16 to $0.61 compared to the same period last year. While the revenue growth isn't that impressive, the 11% increase in orders is. Port congestion had a significant negative impact on total sales for the quarter.

With a strong balance sheet and backlog along with improvements to the company's distribution and business information systems that should allow for continuing margin improvements, Flexsteel is positioned nicely to continue seeing significant growth as demand for its residential products increases. I believe that stock's current price is valued at a point to allow for additional appreciation as the company continues its revenue and earnings growth.

Green Brick Partners

In its last quarter, the company reported a 21% increase in revenue and a decline in earnings per share from $0.28 to $0.16 compared to the same period last year.

The company's backlog improved significantly (34%) and strong revenue growth is expected for the remainder of 2015. The company's CEO had this to say regarding this:

Our dollar value of backlog units increased 34.0%. With new communities opening this year, we expect our revenues to continue to improve significantly when we begin to close on homes in Bellmoore Park, TheVillage of Twin Creeks and other new neighborhoods during the second half of 2015. We expect strong home closing revenues and unit growth in 2015 to translate into a marked increase in total gross margin dollars for the year.

Hooker Furniture

For its last quarter, the company posted a 13% increase in revenue and an increase in earnings per share from $0.74 to $1.16 compared to the same period last year. The company increased its profitability across all business segments and appears positioned to see continued growth with an increased product catalog and an increasing international presence.

KB Home

In its last quarter, the company posted a 29% increase in revenue and a decline in earnings per share from $0.12 to $0.08 compared to the same period last year. This marked the 14th consecutive quarter in which the company's revenue grew on a year over year basis.

While the company's margins did suffer because of higher land and construction costs, the company expects to see significant improvement in this area throughout the year and has issued strong guidance for the remainder of the year.

Ryland Group

In its last quarter, the company posted a 25% increase in revenue and a decline in earnings per share from $1.27 to $1.26 compared to the same period last year.

It's interesting to compare the quarterly performance on Ryland Group with KB Homes as they both had areas in which they excelled compared to the other company.

In terms of new orders and backlog, KB Homes performed better with a 24% increase in new orders and a 22% increase in its backlog, while Ryland saw new orders increase by 8% and its backlog remain flat.

When looking at profit margin, KB Homes performed worse, with a 15.1% profit margin (down 260 basis points) that significantly affected the company's bottom line, while Ryland actually saw its profit margin improve by 40 basis points to 22.3%.

Conclusion

I feel that each of the five remaining stocks make interesting investment opportunities, but I believe that the significant price appreciation of Hooker Furniture and Ryland Group that has already occurred will greatly limit the stock's ability to see significant positive price movement throughout the remainder of 2015.

FLXS Chart

FLXS data by YCharts

In terms of KB Home, I feel the company's heavy debt (2.2x debt to equity) and poor historical stock performance, along with uncertainty related to Houston's market, will prevent the company from being a top stock for this sector this year.

KBH Chart

KBH data by YCharts

With attractive valuations, strong recent quarterly performance, and a solid combination of increasing demand and initiatives in place to provide improving margins, I believe both Flexsteel Industries and Green Brick Partners have the potential to see significant price appreciation throughout the remainder of 2015.

For part thirty one of this series, I will be reviewing the Household Products industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.