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Rod Skellet

Equities Investment Strategist

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Rod Skellet

Equities Investment Strategist

Rod Skellet joined Mason Stevens in 2019 in the newly created role of Equity Strategist. In this role, Rod’s focus is the delivery of co-ordinated investment opportunities across private equity and domestic and international markets. He provides clients with information about equity opportunities – ideas, fundamentals research, technical observations, and integrated execution, to align customer engagement and serviceability. With over 30 years of experience in financial markets, Rod has a strong background in both equity and debt derivative markets and equity and debt capital markets, having held positions at ASX, Ords/JP Morgan , Deutsche Bank, BITG and Origin Capital. He was accepted as a master stockbroker by the Australian Stock Brokers Association in 2001 and is an ASX Derivative Floor Governor.

Bob the Builder
Can we fix it?
Bob the Builder
Yes, we can!

During the lockdown periods of the pandemic, one sector that showed resilience and in fact growth following the March sell-down was the DIY home improvement space. The combination of WFH (work from home) along with heightened unemployment and/or cabin fever, is likely to prolong the trend into DIY and may even establish a new norm. A brief look into the price action in the DIY related stocks in the US shows that this DIY phenomenon is real and is impacting the bottom line in a meaningful way. Stocks such as Lowes (LOW), Home Depot (HD), Sherwin Williams (SHW), Stanley Black & Decker (SWK) Tractors Supply Co (TSCO) have all retraced much of their March falls and some have gone on to establish new highs.

Since the onset of the COVID-19 pandemic, here is a few comments made by management of respective companies in the DIY home builder space. The thematic is consistent with being quarantined at home and being forced to work from home. Being locked up for nine or ten weeks straight certainly gives the homeowner a new perspective of things that need to be fixed around the home. Also, given the contagious nature of the virus, people were also reluctant to let tradesman into their homes for fear of infection. This combination of cabin fever, jobs that need doing, and a deliberate reluctance to hire tradesman led to the DIY resurgence:

  • Home Depot (HD): “…there has definitely been a resurgence of do-it-yourself in this environment. There’s no question about that.”
  • A.O. Smith (AOS): “The DIY Channel…has been very, very strong.”
  • Ashland Global Holdings (ASH): “…DIY was very strong as other companies have reported.”
  • Emerson Electric (EMR): “The DIY space continues to be very strong.”
  • Sherwin Williams (SHW): “In DIY, our business continued to grow at an unprecedented pace and was robust throughout the quarter…”
  • Stanley Black & Decker (SWK): “…there’s a reconnection with the home and garden and a trend towards nesting and DIY…”
Source: Triangulated Research

This trend was initially thought to flame out, as virus infections receded, and people returned to their normal place of work. In addition, the onset of COVID occurred late in the northern hemisphere winter, and lockdowns and the work from home trend started when the weather started to improve. Unlike Australia, there is probably a reasonable seasonality in which genuine projects can be undertaken in the US, especially in the far north. Unfortunately, the virus is not under control and with the summer holidays now finished, plans to reopen have been rolled back, or at least paused. A recent article published in the NY Times pointed out “In recent days, Los Angeles, Miami, Houston and Washington DC, not to mention scores of smaller suburban and rural districts, have opted to start the school year remote only. On Wednesday, Chicago, facing a teacher’s strike over health fears and an uptick in infections in the city, joined the list.”

The case in point here is that if school kids cannot physically attend school, then at least one parent is forced to stay home to supervise. This situation is not unique to the US, as we in Australia know all too well, having a significant impact and forcing many working parents to WFH. Many of the largest employers in the US have adopted some form of WFH out to 2021 including Google, Amazon, and Viacom, while other companies especially in the tech sector, have announced a permanent change, with Facebook, Twitter, Shopify and Square all informing some employees that they need never come back to the office.

The effect of new lockdowns, persistent WFH, staggered return to work, and a genuine mental shift in the working population is all increasing the motivation to do more DIY home improvement. According to research by Technavio, released on a London business wire, “the do it yourself home improvement retailing market is poised to grow by USD$143.3 billion during the 2020-2024, progressing at a CAGR of over 4% during this period.”

Another interesting correlation is the link between unemployment and the increase in DIY home improvement.

In the US the unemployment rate has gone from 3.6% in October 2019 to 10.2% in July 2020, while here in Australia, we have gone from 5.3% to 7.5% over the same period. Over the past 5 years prior to COVID-19, the use of external tradesman to “do it for me” was the norm. Now with unemployment rising, the “do it yourself” market is increasing and is expected to remain robust, while unemployment remains elevated. A recent CNN article by the US Congressional Budget Office “now forecasts the unemployment rate will remain above its pre-pandemic level….until after 2030.” The ten year average unemployment rate is projected to be 6.1%, up from 4.2% projected in January.

Finally, a word on stimulus. Despite no agreement forthcoming between the White House and Congress, President Trump is very conscious of getting aid where it is needed and of course being re-elected. To this end, his recent executive orders to assist those unemployed and/or facing eviction, payroll tax cuts and student loan deferrals are all aimed at appeasing voters and assisting those affected by the pandemic. In addition, the US Fed Chairman made it abundantly clear that they would do whatever it takes to ensure economic stability remains in the US.

I have highlighted four DIY stocks in the US that have had reasonable gains since March, according to FactSet.

Masco Corp. (MAS-USA)

Masco Corp. engages in the design, manufacture, marketing and distribution of branded home improvement and building products. It operates through the following business segments: Plumbing Products and Decorative Architectural Products. The Plumbing Products segment includes faucets; plumbing fittings and valves; showerheads and hand showers; bathtubs and shower enclosures; toilets; spas, and exercise pools. The Decorative Architectural Products segment offers paints and coating products; and cabinet, door, window, and other hardware.

Lowes Companies Inc. (LOW-USA)

Lowe’s Cos. Inc. engages in the retail sale of home improvement products. The firm offers products for maintenance, repair, remodelling, home decorating and property maintenance. It also provides home improvement products in the following categories: appliances, bathroom, building supplies, electrical, flooring, hardware, paint, kitchen, plumbing, lighting & fans, outdoor living, windows and doors.

Home Depot. (HD-USA)

The Home Depot, Inc. engages in the sale of building materials and home improvement products. Its products include building materials, home improvement products, lawn and garden products, and decor products. It offers home improvement installation services, and tool and equipment rental.

Sherwin Williams. (SHW-USA)

The Sherwin-Williams Co. engages in the manufacture and trade of paint and coatings. It operates through the following segments: America Group, Consumer Brands Group, and Performance Coating Group. The America Group segment manages the exclusive outlets for Sherwin-Williams branded paints, stains, supplies, equipment, and floor covering. The Consumer Brands Group segment sells portfolios of branded and private-label products through retailers in North America and in parts of Europe, Australia, New Zealand and China. The performance coatings group segment offers coatings and finishes, and sells industrial wood, protective marine, coil, packaging and automotive markets.

The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.

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