The economy's housing and home improvement segment seems to be on the cusp of a turnaround. Housing manufacturers such as Toll Brothers (NYSE: TOL) and do-it-yourself companies like Home Depot (NYSE: HD) are the obvious beneficiaries of a housing turnaround. Similarly, companies that operate behind the scenes should benefit from an uptick in housing industry growth.

IN PICTURES: Eight Ways To Survive A Market Downturn

Strong Ties To The Paint Market
BWAY Holding Co. (NYSE: BWY), a manufacturer and distributor of metal and plastic containers, participates in the home improvement market by manufacturing containers for industries such as the paints, coatings and driveway sealants markets. It manufactures rigid metal containers like paint cans, but also large, steel pails and aerosol cans. In plastics, it makes injection-molded pails as well as blow-molded containers. All of these containers are used in industrial paints and coatings. BWAY faces steep competition from well-known packaging companies like Crown, Cork & Seal (NYSE: CCK) and Ball Corp. (NYSE: BLL), but it is unique in having a more concentrated market segment and very strong ties with the paint market. During fiscal year 2009, Sherwin-Williams (NYSE: SHW) contributed 19% of the company's metal packaging sales and 18% of the plastic packaging sales. Thus a turnaround in the housing and home improvement markets will greatly influence BWAY'S sales growth. (For more, see Where Top Down Meets Bottoms Up.)

By manufacturing plastic and metal containers, BWAY is subject to commodity risk, particularly resin and steel. The company is able to pass through the commodity costs with metal on a lag and resin through the contracting process. The manufacturing process also uses natural gas and other energy that is subject to market fluctuations. The company forecasts these commodities, and the ability to forecast can cause some variability in earnings. Therefore, the company has historically been able to recoup a majority of the commodity increases, but a timing mismatch affects short-term profit.

Compelling Valuation
Despite the housing market lull, BWAY has been improving its productivity and efficiency. Its efforts have paid off, as the company boasts a higher gross profit margin than its direct peers but is trading at a five-year expected PEG ratio at a discount. BWAY may also be able to deliver a surprise if the housing and home improvement market turnaround is faster or stronger than anticipated. (For related reading, check out PEG Ratio Nails Down Value Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center