Stephen Takacsy, B. Eng, MBARichelieu HardwareRCH.TOBUYMar 27, 2023

(A Top Pick Jan 31/23, Up 10%)

Are tied to home renos and there was huge pent-up demand coming out Covid. So, RCH stocked up on inventory and gained market share. Was up 30% last year, but last week they reported lower margins that will persist given excess inventory (that will last a few quarters). So, he took some profits around $45, but will buy them back. A strong balance sheet and track record.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

RCH missed 4Q earnings estimates (50c vs 53c expected) and this resulted in National Bank downgrading the stock. Sales of $453M were 2% higher than expected. Margins were reduced by expansion, but this also is setting up future growth. Disappointing results, but not a disaster. 10% growth is still expected in 2024. 
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(A Top Pick Nov 30/22, Up 9%)

A strong home renovation cycle will push shares higher. Good profit margins, balance sheet and returns. Managers own a lot of shares. More room to run.

(A Top Pick Nov 30/22, Up 2%)

Thesis remains intact. High quality. Benefited during Covid renovations. Now stock's over-corrected. Usually trades at a premium. Now at an attractive multiple. Significant pullback gives a good margin of safety in the face of economic slowdown.

Has compounded 8x over 15 years. They make specialty hardware, growing organically and buying other distributors then adding product lines (i.e. kitchen cabinets). Just reported record profits. Stocks fell 25% last year when he bought it. Has fallen out of favour, because it is tied to housing, though sales are tied to home renovations through contractors (not hardware stores). Huge backlog for contractors and manufacturers for home renos. Very well-managed and strong balance sheet. Trades at 16x PE only. Have been buying back a lot of shares.

(Analysts’ price target is $50.00)

Did well during pandemic, benefiting from the stuck-at-home renovation cycle. Earnings have declined since, as has share price. A buying opportunity. You'll have to be patient, as he doesn't see an immediate catalyst. CEO owns a lot of shares. Yield is 1.35%. (Analysts’ price target is $49.00)

It's been decimated lately. He models $54.14, so there's a lot of upside. It's at the top of its valuation now. At $33.50, it's a buy. Wait.

(A Top Pick Oct 07/20, Up 14%) They are no longer holding it as it initially benefited from the COVID environment as people took on home projects. Since then earnings are tougher going forward, so they decided to exit. A well managed company.

Mid-cap in building supplies and home improvement space. Growth cyclical. Tremendous compounder over time, about 19% over 10 years. Once you identify a company with organic and compounding growth like this, just buy it. Even better if you can get it on a pullback. Gangbuster year, sales grew 26%, earnings grew 62%. Future comparisons will be tough. Commodity cost pressures are upstream from them. Only 4 down years out of the last 25.

(A Top Pick Oct 07/20, Up 14%) She exited the position when the market started to move from COVID winners to recovery stories. It has held up quite well. She thinks the trends are very much still in place.

Benefiting from shift in consumer spending to the home. Doorknobs, cabinet hardware. Undergoing a positive rerating by the market. Strong consumer tailwinds as people forced to stay home. Good business model. Lots of growth runway. Half of revenue growth comes from accretive acquisitions. Margins have upside. Yield is 0.73%. (Analysts’ price target is $35.00)

Not a long-term hold. Near-term is okay. It's quasi-cyclical. If housing dips...oh boy. He owned this 30 years ago. A good operator with good product, but the macro environment is not good. If a recession comes, sell. Hold.

Since 2018, there's been a downtrend, but he likes buying coming in the past 6 months. As long as it holds above $24, he likes it. The next target is $30. There's definitely upside coming. If it drops below $24, it will re-test lows.

Average down? It had a great run since 2008, overtaking its fair market value, $24.50 now. Little upside here and not cheap.