There are new signs of a resilient housing market and a home renovation rebirth with potentially bullish implications for three of our Club names. Shares of Stanley Black & Decker (SWK) and Caterpillar (CAT), whose tools and machinery are used in homebuilding, have been on the upswing in recent weeks. Additionally, after a lull in Covid-driven renovations, many would-be buyers stuck in their homes due to a housing shortage as well as higher prices and mortgages rating are choosing to upgrade their current digs. Stanley Black & Decker’s brands appeal to Do-It-Yourself (DIY) folks as well as pro contractors and builders. On the decorating side for new homes and after renovations, TJX Companies’ (TJX) HomeGoods chain stands to benefit even more than during the pandemic because rival Bed Bath & Beyond went bankrupt. Shares of SWK and CAT were trading up about 18% and 14%, respectively, over the past month. TJX stock was up 7% over the same period, touching an all-time high Wednesday. Here’s the data supporting our conviction: Sales of new homes rose 12.2% in May month-over-month, to a seasonally adjusted annual rate of 763,000, the Commerce Department said Tuesday. That’s the highest level since February 2022. Home prices ticked 0.5% higher month to month in April, according to the S & P CoreLogic Case-Shiller national home price index. It’s the third straight month of increases after peaking last June. Consumer confidence improved more than expected in June, the Conference Board reported Tuesday, logging its highest level since January 2022. “Historically speaking there tends to be tight linkages between SWK’s stock price performance and fluctuations in consumer confidence and trends in residential-related end-markets,” said Brett Linzey, analyst at Mizuho Securities. “More than 80% of products sold by the company serve consumer-related markets or categories.” According to a recent Repair/Remodel survey by JPMorgan, 84% of respondents plan to do some type of repair/remodel project on their home over the next six months. The survey indicated 63% of the projects are expected to be DIY while the remaining 37% are expected to be done by a professional contractor. Stanley is a global leader in hand and power tools and household hardware, the kind of equipment needed to complete home renovations. Heavy equipment manufacturer Caterpillar, which generates 25% of its construction revenue from residential, should also see growth in its segment as North America construction sales continue to be strong, according to the company. Caterpillar mostly supports large-scale projects with 75% of its construction revenue coming from non-residential. But, as residential building permits increase, there should be sustained demand for CAT’s machines. Caterpillar’s Construction Industries segment represents about 40% of total company sales. “The housing market is an example of an industrial activity that could benefit Caterpillar across most of their businesses,” said…
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