The Real-Estate Market Still Stinks, but Some Housing Stocks May Be Tempting
Even though drywall sales are impacted by trends in home construction, Morningstar analyst Parrish Glover noted that last year, "40 percent of sales industrywide were for repairs and remodeling."
Bruce Berkowitz, comanager of the Fairholme Fund, another deep value-oriented fund, says he too is willing "to consider housing-related companies as their prices have started to come down—but only certain ones."
Like Rogers, Berkowitz has been buying shares of Mohawk Industries, which is one of two leading players in the $25 billion flooring-products market. (The other is Shaw Industries, which is owned outright by Warren Buffett's Berkshire Hathaway.)
Berkowitz says he has been eyeing Mohawk for quite some time. He noted that Mohawk is a high-quality company led by "a brilliant CEO" that generates a lot of cash. "And the stress in the residential housing market gave us an opportunity to step into the stock," he says.
Though Mohawk is affected by the slowdown in housing, Morningstar analyst John Kearney noted that it is diversified between the residential and commercial markets and that it has been growing its business through acquisitions.
Moreover, the majority of Mohawk's sales—60 percent—come from the so-called replacement market (in other words, home renovations and repairs) rather than from new construction. And Kearney notes that the replacement market has "historically shown its greatest strength when the new construction market softened."
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