Charting 2 Small-Cap Furniture Names in Search of a Buy
Someone’s been working hard at La-Z-Boy ($LZB).
We recommended La-Z-Boy going into earnings last week. The Monroe, Michigan-based furniture manufacturer is rarely discussed among traders, yet it boasts a solid balance sheet and a technically favorable chart.
While the company reported flattish revenues, it crushed earnings and introduced a $300 million stock buyback plan. Since La-Z-Boy’s market capitalization is just $1.6 billion, that’s enough cash to buy nearly 19% of the company’s outstanding shares.
The stock reacted strongly to this news, jumping nearly 15% on Wednesday.
Something to Go With the Recliner
As it turns out, we’re not finished shopping for furniture.
Thanks to a suggestion from a reader, I also looked into Haverty Furniture ($HVT). Atlanta-based Haverty sells a wide range of indoor and outdoor furniture. Haverty is even smaller than La-Z-Boy, with a market capitalization of just $396 million.
Traders need to use caution when buying or selling shares of small-cap stocks. Due to the wide spreads associated with these names, we recommend the use of limit orders. As of Thursday afternoon, Haverty Furniture was trading with a spread of 19 cents per share, while the spread on La-Z-Boy was 9 cents per share.
Like La-Z-Boy, Haverty Furniture has no long-term debt. For a company this size, Haverty is cash-rich, boasting reserves of $114 million. This means Haverty Furniture has enough cash on hand to purchase about 28% of its outstanding shares.
Charting Haverty Furniture
Haverty also looks good from a technical perspective. This stock closed at a three-month high on Thursday, after breaking out from a cup-and-handle formation (shaded yellow).
This bullish pattern suggests a price target of $28 for Haverty Furniture. However, the stock must first deal with resistance in the $27.70 area (black dotted line). A move to $28 would represent a gain of about 15% from Thursday’s close.
Haverty Furniture boasts a dividend yield of 5.38%. La-Z-Boy also offers a substantial dividend yield of 2.38%.
Ethan Allen Interiors
We also looked at Ethan Allen Interiors ($ETD), which offers a surprisingly high dividend yield of 7.14%. Based in Danbury, Connecticut, Ethan Allen is a small cap, with a market capitalization of just $556 million. Like Haverty Furniture and La-Z-Boy, Ethan Allen has no long-term debt.
Unfortunately, from a technical standpoint, Ethan Allen isn’t quite up to snuff. The stock needs to break through a bearish trendline (shaded black). Note that the stock’s 50-day and 200-day moving averages are declining, a sign of negative momentum.
Bottom Line
Haverty Furniture, with its bullish chart, solid balance sheet and 5.38% dividend yield, is a buy. Meanwhile, we are maintaining our current position in La-Z-Boy. Ethan Allen has some positive characteristics, but we’re going to wait for some constructive action on the charts before considering that stock.
At the time of publication, Ponsi was long HVT and LZB.
