Investing in Home Improvement

Posted on June 18

Since the start of the housing bust in 2006, the Standard & Poor's Supercomposite Homebuilding Index has sunk almost 70%. The S&P Home Improvement Retail Index is down 37%. Home improvement sales are expected to suffer a third year of decline in 2009, but some investors think home improvement businesses could recover more quickly than home builders. There are fewer big-ticket renovations, but consumers still need paint and carpeting, particularly with all the foreclosed homes trading hands.

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Video: Investing in Home Improvement

BETTER TITLES
Home sales are way off their peak, but title insurers aren't sitting on their hands. The major players are consolidating and focusing on related insurance and information services. Year-to-date percentage losses on the stocks below range from about 13% for First American to around 40% for Stewart Information Services.

HOME IMPROVEMENT
With consumers likely to be fixing up their current homes or renovating a house bought in a foreclosure sale, here are some investments that could benefit.

FIDELITY SELECT CONSTRUCTION AND HOUSING PORTFOLIO
This mutual fund owns a lot of home builders, but it also has big slugs of Home Depot, Lowe's, and Sherwin-Williams.

LEGGETT & PLATT
This manufacturer of parts for mattresses and furniture focuses on the affordable end of the market. Management has divested noncore businesses.

MOHAWK INDUSTRIES
The carpeting and floor-tile giant is a top pick of SunTrust Robinson Humphrey analyst Keith Hughes, who thinks it will earn $1.34 per share in 2009 after posting losses last year.

SHERWIN-WILLIAMS
J.P. Morgan Securities likes the paintmaker's stock because of its strong balance sheet and long-term prospects. It's expected to earn $3.70 per share this year.

STANLEY WORKS
Its sizable business providing security systems for schools and airports is holding up better than its well-known hand-tools business.

By Christopher Palmeri