This company recently presented at Southwestern Showcase 2006, an annual event held in Dallas during November. Check here for a list of presenting firms; most also provided a recording of their presentations. I'll be providing a recap of the events I was able to attend; be sure to check The Motley Fool's daily headlines for updates.
The stocks of companies competing in the home-construction and home-improvement markets are struggling right now; many are trading near their 52-week lows. But are there any potential turnaround plays among these sagging stocks?
Take your pick. The options include both large and small companies. Fellow Fool Tim Beyers recently highlighted a small building-product distributor named Huttig Building Products (NYSE:HBP) that's currently trading more than 40% off its highs for the year and is being closely watched in the Motley Fool CAPS community as a potential value play.
Huttig operates in a unique space in the homebuilding-products channel. Products typically flow from a building-supply wholesaler such as BlueLinx (NYSE:BXC) or from producers such as Weyerhaueser (NYSE:WY) to "pro-dealers" including 84 Lumber, Builders FirstSource (NASDAQ:BLDR), or even Home Depot (NYSE:HD) Supply. These pro-dealers then sell to contractors and homebuilders, and the more fungible, higher-turnover products can eventually end up at the retail arms of Home Depot and Lowe's (NYSE:LOW).
Huttig has managed to squeeze itself in between the manufacturer and pro-dealer as a "two-step" distributor. It adds value by carrying a very wide array of doors, windows, and other building materials that require valued-added services, such as the pre-hanging of doors, before clients can or will use them.
In its recent 10-K filing, Huttig pointed out that its sales and bottom-line profitability depend highly on the cyclical residential-construction market, which is currently going through turbulence as new-home inventories are high and certain markets cool from arguably overheated demand for houses. At the company's Southwestern Showcase presentation, management said it expects a slight operating loss this year, since demand is falling dramatically and left the company with too much inventory on hand.
Fortunately, it is able to cut labor rather quickly and plans on expanding its market share in 2007. In the longer term, it sees an eventual rebound in the market -- perhaps by 2008 -- and stated that there is still plenty of demand, with 20 million homes estimated to be built in the U.S. over the next decade.
There is only one analyst with published earnings forecasts for Huttig; based on next year's number from that analyst, it appears that the company is trading at about seven times earnings. Times could be tough for at least the next year, but those challenges are arguably already priced into the shares.
On the downside, there's no dividend to hold you over while you wait for a recovery. But Huttig is a niche distributor, has been around for 120 years, and is one of many choices to consider in an industry that will undoubtedly see sunnier days ahead. It's just a matter of when that happens.
For related Foolishness:
Home Depot is an Inside Value pick. Check out the Foolish newsletter service dedicated to finding the market's best undervalued stocks by taking a 30-day free trial.
Fool contributor Ryan Fuhrmann is long shares of Home Depot but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.
