My Top Three Stocks in This “Alternative” Housing Market Sector

Housing Market SectorIn late February, we took a look at Drew Industries Incorporated (DW) out of Elkhart, Indiana. The company is a major component supplier to the recreational vehicle (RV) market and also sells to the manufactured homes market.

The RV market has been experiencing a significant upswing in business conditions. Drew Industries’ total sales are 87% in the RV segment, and the company just reported another solid quarter of growth.

For the company, 2009 was a very tough year. Net sales dropped by more than $100 million compared to 2008, and the company incurred a major net loss. But business conditions turned around in 2010, and have been especially good over the last two years.

During the Great Recession, the company’s 2009 sales dropped to $398 million. By 2012, total sales were a record $901 million, which is a pretty significant turnaround for any business.

Last year Drew Industries returned $45.0 million to shareholders with a special cash dividend of $2.00 per share. Between 2001 and 2012, the company quadrupled its content per travel trailer and fifth-wheel RV. Drew Industries now operates 31 manufacturing facilities in 11 states.

Drew Industries’ five-year stock chart is featured below:

Drew Industries Inc Chart

Chart courtesy of

Drew’s third quarter of 2013 also revealed continued economic growth. The company’s consolidated net sales grew 11% to $251 million. Earnings jumped significantly, growing 52% to $14.8 million, or $0.62 per fully diluted share. The company finished the third quarter with a solid gain in its cash position.

It’s great to see genuine new business growth in an old economy industry. Drew’s solid business execution is noteworthy, especially in an industry that’s so mature and cost competitive.

Winnebago Industries, Inc. (WGO) saw its share price implode from $33.00 to $5.00 a share between 2007 and 2009. But the company was able to strongly recover from the recession with substantial new sales growth.

In its most recent quarter, the fiscal fourth quarter of 2013, Winnebago’s sales grew 32% comparatively to $214 million.

Citing increased consumer and dealer demand, fourth-quarter earnings were $10.6 million, or $0.38 per diluted share, compared to $4.0 million, or $0.14 per diluted share (adjusted for a one-time tax benefit) a year ago. (See “Third-Quarter Earnings Season Rosier Than It Appears?”)

Fiscal 2013 motor home deliveries grew 47% over fiscal 2012. The company’s order backlog of motor homes (which is 90% of the company’s business) was $346.7 million as of August 31, 2013, a significant increase from $163.7 million as of August 25, 2012.

The stock recently jumped close to $10.00 a share, and Wall Street earnings estimates have been going up for fiscal 2014 and fiscal 2015.

The RV business is cyclical with sales strongest in the spring and summer months. Winnebago’s business plan is to push more into the towable RV market, which is considerably larger than the motorized market.

To play the industry, Drew Industries and Thor Industries, Inc. (THO) are two suppliers and a proxy on the RV industry. But what Winnebago disclosed in its Form 10-K is key to investing in this sector: according to the company’s experience, the RV market is directly correlated to the health of the U.S. housing market. The same factors affect both markets: interest rates, availability of credit, and employment income. Investors must consider these factors when investing in either sector.