Five Home Furnishing Stocks to Buy in the COVID-19 Recovery

Paul Dykewicz

Five home furnishing stocks to buy during the COVID-19 recovery feature companies that provide household products for bedrooms and bathrooms, home decor, luxury furnishings, painting needs and guest accommodations.

The five home furnishing stocks to buy amid the ongoing COVID-19 recovery offer investors a chance to capitalize on rising demand to upgrade homes as many people spend more time at their residences and less at offices during the global pandemic. Four of the five home furnishing stocks are the current recommendations of BoA Global Research as ways to profit from the “work from home” trend.

Interest in working from home long term is rising, according to series of surveys conducted by BoA in June 2020, September 2020, November 2020 and March 2021. The surveys are intended to analyze the short-and-longer term consequences from the outbreak of the COVID-19 pandemic and on how consumers live, work, and spend their money.

BoA Global Research Sees Support for Five Home Furnishing Stocks to Buy

Roughly 44% of BoA survey participants currently are working most of their week at home, only down slightly from 49% in late November 2020. In comparison, the U.S. Census Bureau estimates that about 5% of people in the United States worked from home before the COVID-19 outbreak.

Even though BoA predicts more Americans to return to the workplace in the coming months as vaccines roll out, a relatively higher portion of the population likely will keep working from home for at least part of each week. Employees who struggled to raise families, find quality and affordable daycare and hold down office jobs now may view a “work-from-home” option as preferable.

Another BoA research tool is its State of Furnishings Activity (SOFA) indicator, designed as a proprietary way to gauge the outlook for consumer spending in home furnishings by using real-time spending metrics, such as aggregated credit/debit card data; consumer health and wealth indicators such as consumer confidence and credit; and housing metrics like home prices and homeowners’ equity. In March 2021, the BoA SOFA indicator reported a reading of 41.2 vs. a 28.3 forecast, way up from 9.6 in February 2020.

Among the three factors of the SOFA indicator and relative to BoA expectations, the spending component outperformed “materially” and improved consumer confidence led to upside in the health and wealth component. The housing component rose in fourth-quarter 2020 on strong home improvement spending. BoA predicted that spending on home furnishings would rise at least through the first half of 2021 but thereafter likely would do so at “decelerating levels.”

Five Home Furnishing Stocks to Buy Include Bed Bath & Beyond

One of BoA’s home furnishing stock recommendations is Bed Bath & Beyond Inc. (NASDAQ: BBBY), an omnichannel domestic merchandise retailer headquartered in Union City, New Jersey. The company features many stores in the United States, Canada and Mexico. I have shopped at some of the stores personally and found useful items that I purchased.

As for investing in the company, BoA put a price objective of $38 on the company based on a 6x enterprise value/ earnings before interest, taxes, depreciation and amortization (EBITDA) — using the investment firm’s 2022 estimates. Potential upside catalysts feature a better-than-expected economy and housing market, cost reductions and other factors. Risks include deterioration in demand from macro changes, a more intense promotional environment, reinvesting in the business to the point of eroding cost savings and a growing willingness of consumers to buy housewares online.

Chart courtesy of www.StockCharts.com

Bed Bath & Beyond (NASDAQ: BBBY), together with DoorDash (NYSE: DASH), announced on April 29 that Same Day Delivery services are now available in Canada, making it easier and more convenient to shop online for products from Bed Bath & Beyond and select Buy Buy BABY locations. Same Day Delivery follows the introduction last year of Buy-Online-Pickup-In-Store (BOPIS) and contactless Curbside Pickup services.

Five Home Furnishing Stocks to Buy Use Innovation

The new home delivery service will let customers shop for their favorite products online and have them delivered to their doorstep within hours of purchase. Same Day Delivery across Canada from Bed Bath & Beyond and Buy Buy BABY will be powered through DoorDash Drive — a white-label fulfillment platform to offer direct delivery to any business.

Through DoorDash Drive, Bed Bath & Beyond and Buy Buy BABY, customers will have access to same-day delivery service to 47 cities in nine provinces across Canada. The new purchasing method is intended as a simple and cost-effective way to shop from home.

“Omnichannel enables people to shop however they choose, is the future of retail and is more important than ever during these challenging times,” said Greg Dyer, vice president of store operations at Bed Bath & Beyond in Canada.

Home Décor Fuels One of the Five Home Furnishing Stocks to Buy

Home Décor is the core product line of Plano, Texas-based At Home Group Inc. (NASDAQ:HOME), an operator of 225 stores in 40 states. Its average store is 110,000 square feet and each location offers 50,000 home products that range from furniture, mirrors, rugs, art and housewares to tabletop, patio and seasonal décor.

At Home gained a price objective of $40 from BoA, based on 10x the investment firm’s 2022 estimated EV / EBITDA. BoA’s target multiple is below the average of 11x for its home furnishing peers.

Chart courtesy of www.StockCharts.com

“While we expect HOME to be a beneficiary of the invest-in-home trend, higher leverage, more competition at HOME’s price points and a less developed omni-channel platform warrant a discount to peers,” BoA wrote in a recent research note. “HOME has an opportunity to significantly grow its store base over the long-term as it is now in a stronger balance sheet position.”

Possible positive drivers of the stock are better-than-expected comparable results from increased advertising, greater-than-expected market share gains from traditional, higher-priced home furnishing retailers, as well as upside from consumers diverting demand into home furnishings. Potential pitfalls could be caused by low per-store staffing which could cause a risk for inventory management and store growth, cash flows that are dependent on sale leasebacks and a continued industry shift to online sales that may not fully benefit HOME.

Money Manager Favors HOME as One of Five Home Furnishing Stocks to Buy

Hilary Kramer, who hosts the nationally aired “Millionaire Maker” radio program and heads the GameChangers and Value Authority advisory services, said that At Home Group Inc. (NASDAQ:HOME) is definitely a favorite for the indoor home products and it is unfathomable for many people to believe that this wasn’t even a $2 stock in the early stages of the pandemic. But for those who have conviction that the long-term view is bright, this is the kind of company that gets acquired sooner or later, especially if post-pandemic “cocooning” patterns become the norm in years to come, she added.

Paul Dykewicz conducts a pre-COVID-19 interview with Hilary Kramer, whose premium advisory services include IPO Edge, 2-Day Trader, Turbo Trader and Inner Circle.

Mark Skousen, PhD, editor of the Forecasts & Strategies investment newsletter, recently recommended HOME to subscribers of his Home Run Trader advisory service. Skousen, who also leads the TNT Trader, Five Star Trader and Fast Money Alert advisory services, wrote that At HOME operates 226 superstores in 34 states and its size, efficiency, economy of scale and low prices allow it to dominate its fragmented competition.

The company ultimately plans to open 600 stores, with its leaders offering guidance of 15-20% annual store growth for the foreseeable future. Its management further has pursued key investments to move inventory through its distribution centers much faster than its competitors. Plus, At Home is a huge beneficiary of the red-hot residential real estate market, since most home buyers complement their purchase with new furnishings.

Mark Skousen, PhD, a descendant of Benjamin Franklin, meets with Paul Dykewicz in Philadelphia.

Luxury Furnishings Company Joins Five Home Furnishing Stocks to Buy

Corte Madera, California-based RH is a company that specializes in luxury furnishings and received a price objective of $650 from BoA. The investment firm described the company as well positioned to benefit from the re-opening of brick & mortar stores.

I never before had heard about a company describing itself as a curator of design, taste and style in the luxury lifestyle markets until I came across RH. It sounded like a company worth checking out for me and worth recommending as a buy for BoA.

RH promotes its collections through its retail galleries across North America, its multiple Source Books and online at RH.com, RHModern.com, RHBabyandChild.com, RHTeen.com and Waterworks.com. The company’s management ambitiously has set a goal of building the world’s most comprehensive and compelling collection of luxury home furnishings.

Chart courtesy of www.StockCharts.com

BoA wrote that its $650 price objective on the stock is based on 18x EV/EBITDA, using its 2022 estimate. The valuation is above the five-year average multiple of 14x on a proven track record of consistently growing margins, as well as several large and long-term revenue opportunities that could deliver upside.

Possible catalysts to let RH top the $650 price objective include continued upside from RH’s gallery conversion strategy, international growth, operating leverage on sales growth, supply chain costs reductions and greater-than-expected share repurchases. Potential problems in reaching that price are a history of execution missteps, weakness in discretionary spending or a recession likely would have an outsized impact on RH’s luxury brand.

Five Home Furnishing Stocks to Buy Gain Color with Prominent Paint Company

As for the best current paint stock to buy, Steve Byrne, an analyst with BofA Chemicals, chose Pittsburgh-based PPG Industries, Inc. (NYSE:PPG). He gave PPG a price objective of $160, since the company’s medium-term outlook and valuation appear relatively more attractive than underperform-rated and Cleveland-based Sherwin-Williams Co. (NYSE:SHW), which received a $215 price objective from Byrne.

Chart courtesy of www.StockCharts.com

Although painting and wallpapering work received the second most votes by BoA survey respondents as a planned home improvement project, the poll participants’ interest in starting a new project have been decelerating since the first edition of the survey in June 2020. This could imply waning demand for the category.

PPG is a global supplier of paints, coatings and specialty materials to serve the home furnishings market. The company’s U.S. paint store business represents less than 15% of global sales and PPG is much more diversified both geographically and by end-market than its peer paint stock SHW.

PPG Earns Spot Among Five Home Furnishing Stocks to Buy

PPG’s paint store business has little exposure to do-it-yourself customers, since its organic sales growth in 2020 slipped into the low-to-mid-single-digit percentages, Byrne wrote. As a result, he forecast a “meaningful improvement” in 2021.

The paint company has more cyclical exposure with auto coatings and industrial coatings as key end markets, along with the benefit from a “reopen thesis” on its auto refinish business that includes collision repair. PPG shares the paint aisle at Home Depot (NYSE:HD) with the Behr brand.

However, PPG aims to gain share from Home Depot’s efforts to grow its paint contractor business. Plus, PPG could be the best value for whatever growth is left in that business after 2020’s work-from-home movement boosted demand for painting projects that can create tough comparisons this year.

Kramer Puts Airbnb on List of Five Home Furnishing Stocks to Buy

Hilary Kramer offered a somewhat outside-the-box idea to invest in home furnishings by suggesting San Francisco-based Airbnb Inc. (NASDAQ:ABNB). The reason many people are so eager to redecorate their residential properties is to rent them out by the night, Kramer added.

Chart courtesy of www.StockCharts.com

The stock is up about 40% for her subscribers in a matter of months. Airbnb, created in 2007 when two Hosts welcomed three guests to their San Francisco home, has grown since then to 4 million Hosts who have welcomed more than 800 million guests in almost every country in the world.

The company’s favorable fourth-quarter results announced on Feb. 26 led Piper Sandler analyst Thomas Champion to raise his price target on the company to $198 from $182 per share. He based the increase on the quarterly results and forward estimate revisions stemming from his discounted cash flow (DCF) analysis. He further hiked first quarter and 2021 estimated revenue/EBITDA estimates that included a return to relative normalcy in 2021.

COVID-19 Does Not Destroy Five Home Furnishing Stocks to Buy

COVID-19 vaccination inroads in recent weeks offer optimism that new cases and deaths caused by the virus may begin to slow after surge occurred in certain states. Further hope could come if efforts to vaccinate groups of people that have been wary thus far begin to succeed.

Nonetheless, U.S. COVID-19 cases have reached 32,512,575 and led to 578,481 deaths, as of May 5. COVID-19 cases worldwide have zoomed to 153,977,028, while deaths have claimed 3,223,800, according to Johns Hopkins University. America has the misfortune of becoming the nation with the most COVID-19 cases and deaths.

The five home furnishings stocks to buy provide investors with a handful of choices for profiting from the $1.9 trillion federal stimulus package, increased COVID-19 vaccine availability and the ongoing economic reopening. Those catalysts seem capable of building further momentum for the five home furnishings stocks to buy.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.

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