In this segment from the Motley Fool Money podcast, the cast takes apeek in the windows of the housing market, and they like what they see: homebuilder D.R. Horton(NYSE: DHI), tool giant Stanley Black & Decker(NYSE: SWK), and paint supplierSherwin-Williams(NYSE: SHW) gave us great quarterly reports late last week. Meanwhile, existing home sales in March hit their highest level in a decade. But those are not the only reasons to like this sector right now.
A full transcript follows the video.
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This video was recorded on April 21, 2017.
Chris Hill:We begin with all things related to housing.Home builderD. R. Horton putting up niceprofits in the first quarter this week,Stanley Black & Decker's first quarter profits more than doubled, andSherwin-Williams'second quarterresults pushed the stock to a new all-time high. Matty,we have all these things in and around the housing market, and I don't know,I look at these results and I just think,I don't really have any exposure to housing in my portfolio, andmaybe it's time I start looking there.
Matt Argersinger: You might want to. You didn't even mention that sales of existing homes in March hit thehighest level in a decade. Lots of macro numbers out there,but I wanted to actually focus on some businesses.I think this can partly explain what's going on in the housing market.Amazon, which we all know, almost $80 billion inNorth American online sales.Facebook, 1.2 billion daily users.Netflix,probably going to crack 100 million subscribers this weekend,many of whom, for some strange reason, aregoing to watch a lot of Adam Sandler,which I don't know about.
Hill: We'll get to that.
Argersinger: Then,Activision Blizzard, which we all know,biggest video game publisher, players spend 40 billion hours playingActivision games last year, three billion hours watching other people playActivision video games. And, here's one more data point, somewhere,according to the U.S. Census, 20% to 25% ofemployees around the countrytelework at least part of the time. Where am I going with this? People areshopping online, entertaining themselves at home,spending hours and hours interacting on Facebook,Snapchat, Tinder,increasingly working from home. So, I feel like, where is all the investing going? What are they not doing? They're not going andgetting a new car, driving to a restaurant or to the mall to go shopping.I feel like that, in a way, issomething that's been happening for a very long time. Now, I think, we'refinally seeing the implications in the markets and in business, and it's anastounding trend.
David Kretzmann: Yeah,last year was the first year where millennials,people between the ages of 18 and 34,became the largest demographic in the U.S., topping baby boomers. At some point, thosemillennials will move out of their parents' basement, they'll want to buy their --
Hill: Well, you did.
Kretzmann: I finally did. I made that leapa couple years ago. But I think that's a long-term tailwindbehind the housing market, because at some point, those millennials will look tomove into their own house, orpotentially build their own house. And on that note, U.S. housing starts, or,the construction of new homes is still a good amount below thehistorical averages. So, there is still room for that tailwind to continue.
Argersinger: And also,what are those millennials going to do? I think more than any other generation, they'regoing to spend a lot more time at home than any other generation. So,that's where they're investing their time, andall that is going to be spent.
Jason Moser: Yeah. Housing is in great shape.I personally would like to go ahead and take credit for the lion's share of thatactivity in the first quarter of this year. You're welcome, America. Chris, I think youprobably have more exposure to housing than yougive yourself credit for as a homeowner. You have a lot of equity in your home, right?! So, there's your exposure. Andthat really is one of the benefits to being a homeowner,getting that equity, getting the opportunityto do more with that as time goes on,because that equity ultimately results innew ways to finance things that may come up in your life. You have a child who'sgetting ready to go to college, there'sgoing to be a lot of big bills coming your way, Chris,so you may want to look at refinancing. Who'sgoing to play a big part in that refinancing? One of ourfavorite businesses,Ellie Mae,which is another way to play into that housing market. And we've talked a lot about Sherwin-Williams,another phenomenal quarter. This is a business where thepaint stores group is responsible formost of the company's revenue, about70% of the revenue. Thisdomestically is about a $12 billion industry, andSherwin-Williams owns more than half of that market share all together. So,I think you posed a verygood question before taping -- whatexactly is going to disrupt paint in the coming years? It's a bit tongue in cheek,but I don't know what does,Sherwin-Williams is in a really good position.
Hill: 25 years from now,aren't we going to be painting our housesand apartments the way that we're doing it right now? I just don't see that changing in any big way.
Argersinger: Unlesswe have pixelated wallpaper,wallpaper screen.
Moser: Sherwin-Williams is in a great positionwith that because of the presence,because of the portfolio of offerings.It's more than just Sherwin-Williams, they'reable to pass through production costs prettyreasonably without too much interruption of the business, because they priced their product there. It's not thehigh-end offering like aBenjamin Moore. And they'regetting ready to close thisValspardeal, which isonly going to make this company bigger.I think when you look at a business like Sherwin-Williams, we had it on the watch list in MDP for a while, thebiggest problem waswe could never get it to where the priceactually made sense. And I understand why,the market gives this thing a lot of creditbecause it deserves it.
Argersinger: Yeah,I just think, standing back, what we've seen with retail salesthis past holiday season, we continue to see it,I think that's a big trend. And we know for a factbased on statistics that we are over-retailed in the U.S. anyway. So,maybe naturally,that's coming down anyway. ButI think that's a big trend to watch out for.
Chris Hill owns shares of Amazon. David Kretzmann owns shares of Activision Blizzard, Amazon, Facebook, and Netflix. Jason Moser owns shares of Ellie Mae. Matthew Argersinger owns shares of Activision Blizzard, Amazon, and Netflix. Matthew Argersinger has the following options: short December 2017 $800 puts on Amazon. The Motley Fool owns shares of and recommends Activision Blizzard, Amazon, Ellie Mae, Facebook, and Netflix. The Motley Fool recommends Sherwin-Williams. The Motley Fool has a disclosure policy.