Whirlpool Corporation (WHR), The Home Depot, Inc. (HD): What’s Going on With This Housing Play?

As ever there is no immutable answer to these sorts of questions. My feeling is that the latter is a better strategy provided its end markets are doing well and the company invests in innovation in order to keep the perception of value in the brand.The good news is that Whirlpool is doing this. Furthermore let’s recall that Whirlpool is acting on behalf of its shareholders rather than trying to establish volume growth for some ulterior motive.

With this in mind it’s worth looking at what the industry is saying. I noted that in General Electric Company (NYSE:GE)’s recent outlook it gave a positive prognosis for its home and business division. While it is not a big part of GE’s operations it is a significant marker for its view on the consumer market in 2013, particularly the housing related sector. Moreover, GE is similarly positioned to Whirlpool in the market so there isn’t strong evidence to suggest LG and Samsung are set to dominate.

Turning to the home goods stores, The Home Depot, Inc. (NYSE:HD) reported that its pro sales were starting to increase more relative to consumer sales in Q4. This is a sign that the market is starting to turn up definitively and not just relying on replacement sales anymore. Furthermore, Home Depot reported that more of its discretionary elements were starting to outperform and crucially for Whirlpool, it said that kitchens, bath performed positively. It was a similar story with Lowe’s Companies, Inc. (NYSE:LOW). It reported that the outperforming categories in the quarter were things like cabinets, counter-tops, home fashion, storage and cleaning. Again this is good news for Whirlpool.

As noted in a previous article we are approaching the 10 year anniversary of the boom years in the housing market where consumers were accelerating their purchases of white goods. Therefore it is reasonable to expect a new replacement cycle to kick in over the next few years. This should benefit all the companies discussed above.

Where Next for Whirlpool?

On balance I think Whirlpool’s mix of exposure to a resurgent housing market plus its margin expansion opportunity makes it an attractive stock to hold. It is forecasting North American growth to come in at 2-3% with Latin America at 3-5%. If it hits these rates and continues to expand margins and cash flow I think the stock will be higher at the end of the year.

The article What’s Going on With This Housing Play? originally appeared on Fool.com and is written by Lee Samaha.

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