The hidden success story in housing
Homebuilder shares are slumping this year, but the companies that make the goods for new homes are soaring.
The dichotomy between the housing stocks and the stocks of companies that make goods that go into new homes is about as stark as I can remember. And the disparity is growing.
You take high-quality home-related stocks like Masco (MAS), up 25%, Home Depot (HD), up 24%, and Lowe's (LOW), up 38% for the year and you compare them with homebuilders like Pulte (PHM), down 3%, Toll Brothers (TOL), flat, Lennar (LEN), down 9%, and DR Horton (DHI), off 6%, and you might as well be talking about two totally unrelated industries.
That's because they are two different industries. One's related to confidence, credit, cost of building homes and interest rates and the other is just about pent-up demand to spend on a house you already own, knowing that your house is done going down in value.
I think that the confusion over these two parts of the housing story is what has kept a lot of people out of Whirlpool (WHR), up 44%, or Masco or Fortune Brands (FBHS), up 45%. Investors just don't believe that they aren't a tandem, that they aren't handcuffed.
It's still one more example of a changed market that people don't understand has occurred. The housing stocks haven't done much at all year. They didn't do much ahead of the interest-rate spike and they have done much since. I think that's because they are still expensive relative to earnings. They ran up so much going into the year that they will have to stay put and the fall will have to be a good selling season if they are even going to maintain their current price levels. I don't think it will turn out to be so because of the sequester, debt ceiling and budget shutdown debacles.
But the housing-related stocks were standouts coming in to the year and then got hammered only with the sudden rate increase. Ever since, then they have slowly but surely come back as the 10-year drifted below the 2.5% level. I think these stocks are now, to a degree, vulnerable again if rates tick up to 2.75% -- as they appeared to be during the end of last week's session -- but that they are benefiting from a consumer that has a predilection for hard goods over soft goods. I don't see that changing anytime soon.
I expect the housing stocks to continue to perform poorly for the rest of the year, given the damaged psyche of the consumer thanks to Washingtonian bungling.
But I think consumer spending on his or her home is not going to let up, even as the stocks will go down based on a rate rise if it continues. I think the opportunity in the sector comes if rates back up to 2.80% and the housing-related stocks get hit again. Then you have to pounce because the earnings will be unimpeded, even as the stocks say they should be.
They won't be and that's why they are buys.
My favorite? It's Lowe's because the chain has gotten it together and closed the gap with Home Depot for the first time in decades. But Home Depot will be no slouch either and I expect it to pause and go higher still.
But the homebuilders? I still see no reason to own them. Their multiples aren't so low, their sales prospects aren't so high that they can be considered either value or growth stocks. Only time or price can solve those and that's something nobody wants to wait around for anymore, especially if there's no dividend protection or, for that matter, protection from Washington if you own these underperforming stocks going into 2014.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long LOW.
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Last time I checked, Lowe's and HD didn't make anything, they just sell stuff. And they sell more stuff that goes into existing homes than goes into new homes. So to suggest there's some kind of disconnect between homebuilder stocks doing poorly and home improvement retailers doing well is just stupid.
Don't think I'd want to own any homebuilder stocks right now. The price of building materials is really going up fast, and interest rates are headed north, too. And there's still plenty of existing homes on the market. There's better plays out there, like the retailers, lumber companies, tool companies, DuPont, etc... Why be exposed to just a homebuilder when you can own companies that profit from both new and renovation construction?
If a Rental Backed Securtiy is rent-to-own it doesn't sound much different than a mortgage. Except if you take away the prepay risk and just pay flat rent without ever prepaying your mortgage, well equity quickly disappears from the borrower and magically re-appears in the pockets of the investor. Granted nobody should prepay a mortgage if they snagged one under 4% but still! Traditionally you use your house as collateral for other loans, you gotta build up equity to do so!
This of course is another scheming way to shift wealth from middle class who hasn't recovered yet to the investing class who caused the great recession.
DLH:Sorry to burst your bubble but by the end of the month this website trouble will be over
and millions who couldn`t get insurance the last few years wll be signed up.Enjoy this time and
next month youcan dream up another scandal.Just keep the hopes for a market crash.The blondes
on Fox will say"Market crash?You mean the super markets were bombed?"
Now investors own more so they can charge more rent (rents are going up).
Where will the little people live Jim? when little people can't afford homes and the rent is too damn high.
I'm telling you - people have had enough, and I won't be surprised when the revolution happens.
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Last night's call was a stunning reflection of how little the retailer cares about the whole process of reporting results.
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