Over the past couple of months Canadian home improvement retailer Rona was regularly appearing on the 52 week low list. That caught my attention. Rona was trading at less than book value. It's conservatively financed and out of favour. Investors are pessimistic about the future of housing related companies. There is uncertainty as to when the economy will be on a more firm footing and consumers start spending on their homes again. In the meantime, Rona management is tweaking their operation to improve margins ( lower margins than Home Depot and Lowe's) and product line-up. While there is still growth ahead for RON, it will likely be slower than in the past. The Canadian home improvement market is quite mature.
A longtime criticism of RON was put to rest last week when management announced a semi-annual dividend of 0.07/share. While small now, the dividend will likely grow in the future. The market reacted positively to the move as management is signalling their confidence about the future.
I don't currently own RON shares. It has moved up briskly over the past week so I'll have to wait for a pull-back. For patient investors, RON would be a good buy with a 2-3 hold period if you think consumers will return in droves to the paint aisle. So, if you find yourself in the paint aisle at your local home improvement store, considering picking up a couple of gallons of your favorite Benjamin Moore colour. Berkshire Hathaway shareholders will thank you.
Andre
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