Morgan Housel: Austin, you cover the consumer goods space here at the Fool. As you look back at 2012, what were some of the companies that performed the best?

Austin Smith: Well, there was definitely a trend across home builders, and basically anything related to housing stocks.

At the time that I ran the report, maybe a day or two ago, Lumber Liquidators was the best-performing stock, at a 190% gain. PulteGroup was No. 2 at 151%, KB Home No. 6 at 114, Standard Pacific No. 7th-ranked at 110%, and Whirlpool No. 8th-ranked on the list at 105% -- all intimately related to the housing sector.

Morgan: All linked to housing. I think it's pretty clear that the housing market has bottomed. Not only that, but it has a pretty good potential to have a pretty good run going forward.

Austin: Absolutely. A lot of people look at these and they say, "Is the run over?"

You certainly may have missed out on some of the early big gains. We know Home Depot is the second-best performing stock on the Dow Jones Industrial Average this year, all related to this housing rebound. But you had a really great article and you made a great point with me a couple weeks ago, about the disparity between housing starts and households, and there is still quite a gap that we have to fill.

Morgan: Right. Right now, we're creating about a million households per year, and we're only building about 600,000-700,000 homes.

That number has increased substantially. A couple of years ago we were only building about 400,000-500,000 homes. It's increased substantially, but there's still a big gap between how many new households are being created, and how many homes are being created.

Over the long run, that number will meet itself, start to converge, so there's still a good argument that you could make, that housing has a ways to run.

Let me ask you, with housing stocks, they've had a big run this year. What do you think about valuations now? Is excitement getting too much?

Austin: We do know that early valuation, or starting valuation, is the No. 1 determiner of returns. You and I have chatted a lot about that, and I see Home Depot looking a little expensive to their growth now.

Now, that's not necessarily the case. Some of the companies like Lumber Liquidators and some of the smaller homebuilders that really just got destroyed coming out of 2011, they still may have a little bit of steam left in the tank.

I think a company like Home Depot is looking a little expensive to growth. Some of the smaller, more niche plays -- Lumber Liquidators, Whirlpool -- have a tremendous potential, Whirlpool, in particular.

We're looking at appliances at the oldest age they've ever been. It's sort of like the automobile sector, where a lot of people put off these purchases in the recession, so you could very much see that being a continuing tailwind through 2013.

Look to the smaller niche players in this space. They could still have a lot of room to run in the year ahead, as we try and meet that gap in demand that you touched base on.

Morgan: Well, let's see what happens in 2013.

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