PSB Monthly Issue July 2015
Homebuilding Is Sky Rocketing… This Company Is Poised For 200% Gains Or MORE!
Right now the weather in Phoenix is heating up. Do you know what else is heating up?
Construction!
I know construction’s heating up because I see it.
When I’m out running errands, I’m constantly getting stuck behind those big construction trucks hauling building materials.
Needless to say, it got me thinking…
There’s a lot of money in construction. And it made me wonder where it was all going.
So… I did some research.
Construction’s booming this spring!
I went to census.gov, a government website with data on the construction industry.
What I found was some amazingly bullish news.
The most recent housing census provided strong data points for construction!
As you may know, you need a building permit to start building a house.
Building permits were up 11.8%. This was above the April rate. It means we’re going to see a lot more construction in the future.
Residential Construction on the RISE
While the future is looking bright, today we’re already seeing construction move higher.
For example, KB Homes ($KBH) recently released their Q2 earnings. They got a ton of attention.
KB’s Total revenue last quarter was up 10%. Even better, new orders are up 38%! Clearly the homebuilding industry is on fire.
Keep in mind… other residential builders are seeing their sales increase too.
All this data points to one thing…
The demand for building materials is soaring!
I figure we can profit from this trend.
While doing our research, we uncovered a company in the right place at the right time.
Huttig Building Products ($HBP)
Today, I’m going to introduce to you a building products company that trades as a penny stock.
I expect this stock to rally 200% or more… I’ll explain to you why in a minute.
But first, let me tell you about the company.
Huttig Building Products has been around for 130 years. They distribute millwork, building materials, and wood products.
HBP’s mission is creating high quality products with reliable service.
They wholesale products for new residential construction, home improvement, remodeling, and repair work.
The company sells products through 27 distribution centers serving 41 states, giving them strong geographic coverage.
Huttig business is seasonal, with the summer months being the busiest. As a result, we expect the 2nd and 3rd quarter financial numbers to be very strong.
Good results over the next few months should attract the attention of more investors, driving the stock price higher.
Before we get ahead of ourselves, let’s look at their numbers.
The Numbers
Huttig’s numbers are improving dramatically.
First quarter net sales were $147.4 million. That’s a 9% increase compared to the same quarter of 2014. As you can see, demand for building materials is already on the rise.
Sales increased in all major product categories.
Millwork increased 5%. Wood products increased by 7%. And building product sales jumped a staggering 15%. More proof residential construction is on the rise.
Sales aren’t the only area the company is seeing improvement…
They’re also seeing gross margins increase. They jumped 8% in the first quarter. However, as the demand for building materials rises, Huttig should see margins get even better.
Their net income in 2014 was positive, but not very exciting. They showed only $5.8 million of net income. Then in the 1st quarter 2015, net income only broke even. This probably scared away some investors.
In the next two quarters, we’re expecting them to turn a larger profit. This should attract investors back to the stock and drive the price higher.
But that’s not all…
Another thing investors will like about this stock is their solid balance sheet.
The company has $156.8 million in total assets compared to just $76.9 million in debt.
Huttig shows $81.7 million in inventory, a jump of $14.3 million from the end of 2014. This increase is in anticipation of a strong 2nd and 3rd quarter. It’s good to see Huttig preparing for their busiest sales months.
Investment Risks
As with any penny stock investment, HBP does have a few risks.
If housing suddenly takes a down turn, it will negatively impact the company. And, something as simple as the Feds increasing interest rates could also hurt residential construction.
Like any business if their cost of operations jumps, it could be a drag on performance, and that would hurt the stock.
Here’s one other risk factor you need to know.
The company had an old Montana location that became contaminated. They are now required to clean up the area. Hutting is working with the Montana Department of Environmental Quality to remediate the issue. They have already set aside 3.2 million to clean up the area. The big risk is cleanup costs might increase.
There are other risk factors that you can read all about in the 10K, at Sec.gov.
Potential Returns of 200% or More
HBP has shown substantial growth in net sales and increased margin. While the homebuilding industry is sky rocketing, HBP is definitely along for the ride!
With all this going on, it perfectly positions HBP for massive gains in their 2nd and 3rd quarter earnings.
The company provides needed and quality products with reliable service.
And, HBP’s financials are solid across the board making it a great contender to soar!
Yet, a competitor’s valuation points to HBP trading 10x HIGHER!
We took a competitor, Louisianan Pacific (LPX), who primarily manufactures and sells building products used in new home construction. They have a $2.7 billion market cap with $1.9 billion in sales.
This gives them a price to sales ratio of 1.26x.
In comparison, Hutting has $635 million in sales…
If we gave them the same price to sales ratio of 1.26x, HBP would have a market cap of around $800 million. HBP’s current market cap is only $79 million. That’s 10x where we are today.
Conservatively, we think a 200% return is possible in the next few months if the company continues to execute and the market stays strong.
With the stock currently trading around $3 a share, this penny stock might reach $8 to $9 in no time.
Based on our analysis, we see HBP climbing to $9. Buy the shares now for potential gains of 200% or more!
KEY INVESTMENT DATA
Name: Huttig Building Products
Ticker Symbol: HBP
Market Cap: $78 million
Recent Price: $3.17
PSB Rating System 4.7 Stars
Raging Revenue: (4.5 stars) The Company posted $147.4 million in net sales last quarter. A 9% increase compared to 2014. Also, sales in all major product categories are increasing!
Beautiful Books: (4.6 stars) HBP has strong margins; it increased 8% last quarter. We estimate the company is on track to record a profitable quarter as building activity is soaring.
Stellar Structure: (4.5 stars) The Company’s balance sheet is also in good shape. The company has $156.8 million in total assets compared to $76.9 million in debt.
Valuation Verification: (5.0 stars) HBP is dramatically undervalued when compared to a competitor in the same industry. Given the valuation, the shares could climb 200% or more in the next few months.
Meaningful Milestones: (4.9 stars) HBP is right in the middle of their two most profitable quarters. The company should announce next quarter earnings at the end of July. This is the first of their most profitable quarters.
Action Recommendation
BUY Huttig Building Products (NASD: HBP) up to $3.52 per share.
Recent price is $3.17
Use a stop-loss of $2.50 on this position.
Don’t forget your position sizing and stop-loss rules.
Position Updates
Here are some highlights from the past couple weeks…
- JAKKS Pacific (JAKKS) has reached a new high since our last update.
- Angies List (ANGI) Just appointed Mark Howell as Interim CEO
- Marin Software (MRIN) released new smart sync technology enabling advertisers to easily sync with Google campaigns and other publishers.
Category: PSB Monthly Issues
