Top picks for home improvement exposure: Analyst
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RBC Capital Markets Analyst Bob Wetenhall gave his top three stocks for next year during an interview with CNBC "Power Lunch" on Thursday.
His top pick is Whirlpool Corporation, which he described as a world-class company with tremendous growth and an exceptionally attractive profile. Year to date, the company's stock has sunk 23 percent.
Wetenhall said his firm considers investors fears about its promotional activities during the fourth quarter "overblown."
"Stocks' going to earn $12.25 this year, $14.25 in 2016, trading at ten times earnings," he said. "Super cheap, great management team, tremendous M&A skills, dominating Europe, and North America is doing a lot better than people think."
Analysts expect the company to earn $12.15 per share during fiscal 2015 and $14.40 in fiscal 2016, according to a consensus estimate from Thomson Reuters.
Wetenhall is also bullish about the company's performance in Europe. Whirlpool's recent acquisition of a majority interest in Indesit in the current quarter makes the company number one in the European continent, he added.
"Huge acquisition, synergies are going to drive cash flows...This is a cash-flow growth story," Wetenhall argued.
"A couple misfires in their communication," and 2015 not being the company's best year have attributed to misunderstanding of Whirlpool's stock, he explained. "We're expecting that they're going to grow in line or stronger than the market" in 2016.
Fortune Brands, the parent company of Master Lock, is Wetenhall's second pick. RBC rates its shares "outperform."
"This is another world-class management team, dominates cabinets, extremely strong in plumbing," he said Thursday.
"They [management] only get paid if the stocks goes up. They got a super clean balance sheet; and we think they're active on the M&A trail," Wetenhall said.
With a "sector" perform rating, RBC chose Toll Brothers as its third pick.
"We were concerned about the valuation; stock was not well received when they reported fourth-quarter on Monday, traded off 7 percent. " Wetenhall told "Power Lunch" on Monday. "We think the bad news is fully priced in, they actually had very strong order growth."
Although there may be concerns about this stock's performance in New York due to lower compensation in Wall Street, the analyst notes that Toll Brothers' portfolio is performing well in California.
Regarding the general housing market in Texas, Wetenhall does not see a housing slowdown.
"We think the engine is going to continue," Wetenhall said. "You got continued job growth, sustained consumer demand, low interest rate. Don't fear the Fed," he noted.