The Secular Uptrend in the Home Improvement Space has Just Begun

Apr 8, 2021

Editor's note: Join our ace chartist, Brijesh Bhatia, on Equitymaster's YouTube live stream. Brijesh will be talking about the price of bitcoin. Is it in a bubble? Find out at 11 am on 10 April. Set a reminder for the live stream here.


How many times have we read about predictions of thunderstorms, but the weather ended up being bright and sunny?

In stock markets too, predicting short term price movements is hazardous to say the least.

And that's precisely the reason why market veterans from Warren Buffett to Peter Lynch advise not to time the market.

After all predicting daily/weekly movements is difficult not only in the stock market but also other walks of life.

The two key fallacies in the prediction plan are...

a) Assumptions are based on information which is never static

b) Multiple assumptions make up a prediction and it's difficult to be right on all the assumptions

The key word here would be 'consistency' in forecasting.

--- Advertisement ---
One stock to add to your portfolio asap

Our co-head of research, Tanushree Banerjee, has uncovered this one stock, which she believes is a must have in your portfolio.

Tanushree is very bullish on this stock.

It could potentially multiply invested money 12 to 13 times over the long term.

Tanushree will reveal details of this stock at her upcoming special event.

You can click here to sign-up. It's free.
------------------------------

In stock markets, I am sure you would agree without a doubt that Consensus is a dangerous word.

This reminds me of the famous quote by John Templeton...

  • "If 10 engineers tell you to build a bridge a particular way, then that is how you should build the bridge. If 10 doctors provide the same diagnosis, then you should follow the treatment. However, if 10 analysts tell you that a stock is cheap, then you must avoid it".

If timing the market is difficult, how do we make money?

You can focus your investing on certain sectors that are likely to outperform the rest for certain periods.

But how to find them?

That's where the business cycles come in picture. This is different from timing the market in the short term.

I am sure, the buzz word these days in the market is a 'commodity bull run' or the 'real estate revival'.

Every asset class goes through an economic/business cycle with the length. The intensity of the cycle is different for each asset class.

The key is to identify what stage of the cycle we are in. Is it a trough, pick up, maturity, stagnation, etc?

This is different from timing the market.

Revealing Tomorrow: The Great Indian Wealth Project

In my last editorial, I wrote to you about the real estate cycle and how we are coming out from a long 5-6 year hibernation.

Along with investing in a particular asset class in early stages of the cycle, identifying proxy plays to the can yield superior and safe returns.

Proxy plays are generally the ancillaries to an asset class.

The beauty of some proxy plays is that along with the underlying demand from the asset, the replacement demand of the asset also supports revenue growth.

Take the example of the furniture market (plywood, MDF, laminates, tiles) or the consumer durables (A/C, washing machine, fans) to name a few.

Building materials and home improvement gets a chunk of its sales from the replacement demand in case of a slowdown in the real estate sector.

It is a quasi-consumption play. The demand patterns in the sector mimic the consumer discretionary sector in many ways with respect to the ticket size and the frequency of consumption.

Also, the multiple streams of revenues in the home improvement sector limits sharp drawdowns in case the cycle turns adverse.

In simple terms, if more homes are sold, more furniture, more consumer durables will be sold. Also, if the sales of homes slow down, the replacement demand will be the savior.

--- Advertisement ---
How to Earn a Fortune in Gold, the Smart Way

Gold is on 'the verge of a decadal run' says Vijay Bhambwani, India's #1 Trader and Editor of Fast Profits Daily at Equitymaster.

He says gold has the potential to generate staggering gains in the coming years...And those who are betting on gold right now will hit the jackpot.

But wait.

While gold is an attractive investment destination, there's a very specific way to play this opportunity...

A way that ensures you rake in maximum profit and perhaps hit the jackpot...while minimizing potential pitfalls. Thankfully, Vijay - India's #1 Trader - can guide you step-by-step in the upcoming gold rush and help hit the jackpot just at the right time.

Sure, you don't want to be an average trader. That's not how you make a fortune.

Here's how you can get Vijay's guidance...
------------------------------

But in life and markets, everything comes for a price. The relative safety which the home improvement stocks provide comes at a higher valuation.

But I guess that's their margin of safety.

So what is going to drive the home improvement space going forward apart from the underlying real estate demand?

With world economies focusing on China plus 1 suppliers, Indian companies are poised to benefit immensely. The government's PLI scheme is also likely to fuel strong exports in the home improvement sector.

And forget the corporates shifting to work from home. Discretionary spending on home improvement is likely to jump manifold in the future.

Stay tuned for more on these and other stocks from me in future editions of the Profit Hunter.

Warm regards,

Aditya Vora
Aditya Vora
Financial Writer

PS: Dear reader, on Thursday, 15 April, Tanushree Banerjee, our expert on safe stock investing, will reveal potentially the greatest wealth-building event for your net worth. Join Tanushree at the India Revival Summit.

Recent Articles

What Godrej Consumer's 22% Single-Day Gain Tells About My Blueprint May 14, 2021
The company's FY21 earnings performance turned out better than my estimates but...
Beware! Not Every EV Stock Will Be a Tesla May 13, 2021
Analyse the business models of EV stocks before investing in them.
Look Out for Extra Cash from Your Stocks in Next Few Months May 12, 2021
Extra cash can be a boon or a curse in disguise.
Smallcap Index up 150%! Here's Why I Believe There's More Steam Left May 11, 2021
I'm excited about the select opportunities in the smallcap space but I would also like to warn you about the potential pitfalls.

Equitymaster requests your view! Post a comment on "The Secular Uptrend in the Home Improvement Space has Just Begun". Click here!