Presenting to you the second potential superstock of the week - Huttig Building Products. (Read about the other superstock of the week - BO...

Weekly Superstock Scan 6 May 2016 - 10 May 2016: HBP

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Presenting to you the second potential superstock of the week - Huttig Building Products. (Read about the other superstock of the week - BOSC here.) This stock is related to last week's stock AV Homes. While AV Homes construct homes, HBP distributes millwork and specialty building products for light distributors of residential construction and remodeling. 

HBP purchases from leading manufacturers and distribute their products through 26 wholesale
distribution centers serving 41 states.In addition, HBP also provide value added services which include pre-hanging exterior and interior door units, prefinishing exterior door units and cutting engineered wood products from standard lengths to job-specific requirements.



Technical


Broke Out from Long Wide Base

HBP has been trading within a $2.80 - $4 box since September 2014. The trading range is wide enough to call it a box instead of a flat base, but the dynamics of a breakout should be the same. After the initial breakout, HBP reached a high of 5.24 before consolidating in the recent weeks.

With falling volume, HBP appears to be well supported by 10wMA, which may be a magic line for the stock.


Fundamental



Strong Track Record of Growth

HBP boosted a record that not many companies can match. In the latest call conference, HBP announced that excluding unusual charges, it has completed 20 consecutive quarters of year-on-year improved financial performances.

Acquisition of BenBilt

On April 4th, HBP announced the acquisition of BenBilt building systems, a leading wholesale distributor and door fabricator that has served the mid-Atlantic region for 15 years. The acquisition will provide HBP with growth opportunities in the mid-Atlantic region and strengthens its position as the largest door fabricator and value distributor in the country.

The contribution of BenBilt is not included in the quarterly results as the acquisition occurs after the quarter, but HBP announced that "in less than a month they (BenBilt) are already making contributions that reach beyond the mid-Atlantic region."

Single Family Home Buyers Yet to Enter the Market

HBP is banking on macro-economic conditions for sustainable growth. As a distributor of building materials, its financial result is dependent on housing starts in the US. HBP noticed that the current housing starts is still way below the 30 year historical average of more than 1.4 million housing starts.

In particular, since the downturn multifamily housing starts have become a larger percentage of total starts and have grown faster than single family starts. HBP believes that the single family home buyer will eventually enter the market and this will be an important growth catalyst for HBP.


Risk Factors/ Things I do not Like


  • Low Liquidity - Before this year, liquidity of the stock was really low. On most days there were trading between 11-20k shares a day. At the first half of 2015, less than 10k shares were exchanged daily for most days. Liquidity has improved this year as around 50k shares were traded per day. There is a chance that liquidity may dry up with lack of catalyst and coverage, and it will be difficult to exit the trade.
  • Strong competition from current and potential competitors - The building materials distribution industry is highly fragmented and HBP has to compete with many local, regional and national building materials distributors and dealers. Manufacturers can potentially bypass distributors to market to HBP's customers directly in the future. And home center retailers can also expand their customer base to large contractors and homebuilders who are HBP's customers.


Potential trade setup


HBP has already pulled back on a relatively light volume over the past three weeks. With the 10wMA just below, a possible low risk entry will be placing a trade when the stock hit the 10wMA again. At current level I am looking at an entry of around $4.55.


Do note that there is some long term resistance at the $5-$5.2 region which is likely to pose some problems if HBP does move upwards. That will be a good region to take some profit off or at least move the stop loss to breakeven.

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Previous Superstocks


AVHI (Posted on 29th May 2016 Watchlist)
Broke recent high, ready to enter

EHTH (Posted on 15th May 2016 Watchlist)
Pulled back a little, waiting for further consolidation

GDEN (Posted on 24th Apr 2016 Watchlist)
Price reach low of 12.25 last week and did not hit order at 12, to await low-risk entry

EXFO (Posted on 10th Apr 2016 Watchlist)
Entered @ 3.8 and 3.9.

BORN (Posted on 3rd Apr 2016 Watchlist)
Trading within range and appeared to have lost momentum.

PLPM (Posted on 27th Mar 2016 Watchlist)
Consolidating, will look for possible entry at 10wMA

SNC (Posted on 6th Mar 2016 Watchlist)
Entered @ 11.95. Closed just above the gap and 30wMA, will add if bounce off from here.

EDUC (Posted on 24th Jan 2016 Watchlist)
Entered @ 9.95. Exited at 10.7, 10.75



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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.