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Pent-up demand and its potential for U.S.

Chris Buchbinder
Portfolio manager/investment analyst
Based in:
San Francisco office
Investment experience:

CHRIS BUCHBINDER: One of the areas that I’ve spent some time on over the last couple of years is housing-exposed companies. Not so much the direct homebuilders, because (a) they’re more volatile [and] (b) they’re less appropriate for the funds where I manage money. But there are a number of other companies — home-improvement retailers, suppliers to the housing industry — which had gotten deeply discounted during the recession because everyone was afraid of housing, and have come back. In most cases they’ve come back substantially off their low points, but if you just look at where we are relative to a normalized level of demand, it seems that they’ve got a lot further to go over the next several years.

And so it’s companies in the home-improvement space that were able to dramatically improve their operating systems and logistics — and had upgrades to management during the downturn and now are leaner and meaner — and as their comp-store sales begin to improve with an economic recovery and recovery in housing-related demand, they get a lot of leverage from that. We’ve already seen it, and I think we’re going to see more.

At the tail end, there are other companies that are exposed to housing in the housing-supply area that haven’t fully seen a recovery in their end markets yet, because we haven’t had enough of a recovery in remodel activity or new-housing construction. But you can see it starting, and their margins are well below normalized margins that they sustained for many years.

And so over the next, again, two or three years, it’s highly likely we’ll see much higher levels of profitability at some of these companies. And while the stocks are up from their lows, I think we can expect them to go further.

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