Masco (tkr: MAS) is one of the largest manufacturers of products for both home improvement and new home construction markets. Its four main businesses are plumbing, cabinets, windows, and decorative architecture (paint). Masco owns plumbing brands such as Delta, Brizo and Hansgrohe, cabinet brands Kraftmaid and Merillat, Milgard windows and Behr paint. After the housing crisis of 2008-2009 caused several difficult years for the company, Masco went through a massive restructuring. Since then, it has emerged a much leaner, more agile company that continues to demonstrate disciplined cost management in an improving housing environment. More recently, Masco has begun to reward shareholders with greater returns: since the beginning of 2014, Masco has increased its dividend twice after over four years of leaving it steady at $0.075 per share post-restructuring. Late in 2014, Masco also initiated a buyback program of around 50 million shares, or 14% of outstanding shares. Masco’s stock performed very well in 2015, increasing about 28% even as the greater industrial sector floundered, falling 6% this year. Over the past several quarters, Masco has seen significant margin improvement alongside healthy revenue growth across all segments.

While most of Masco’s segments have been profitable since the 2009 restructuring, the cabinet business has been a source of pain for Masco, as the segment had been losing money for several years. Returning this segment to profitability was a long-term goal of management, and it finally happened in 2015. Masco deliberately exited the low-margin direct-tobuilder business and refocused cabinetry sales with the more profitable home center and dealer channels. This has been an impressive turnaround story that boosted Masco’s stock price in 2015.

We own Masco because we think it will continue to benefit from an improving housing market. As the values of existing homes rise in many areas across the country, the repair and remodel market grows stronger. Although the new home construction data has been somewhat inconsistent, we believe it is on a long-term upswing, and in the meantime, we particularly like Masco’s exposure to the robust repair and remodel market. Masco recently spun off its installation segment into a separately traded company, called TopBuild (tkr: BLD). We believe this was a prudent move that increased Masco’s exposure to the repair and remodel segment, as the installation segment was almost entirely servicing the new home construction market. We sold the spinoff because we felt it was better to focus on Masco’s other core businesses. Since TopBuild began trading in June of 2015, Masco has outperformed significantly.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.