5 great stocks for the housing recovery
Investors will benefit as consumers boost spending on home renovation and furnishings.
By Michael Shulman
Housing is booming, right? Actually, it is not. It is simply recovering a bit from the worst bottom in living memory. New home starts are still more than 50% below peak.
What is rising nicely is the price of the average home, 10.6% year over year according to Case-Shiller data released a few days ago. As prices rise, people feel wealthier -- and they also see their home once again, as place to invest in. So they buy materials for renovation projects, paint appliances, furniture and so on.
The takeaway for investors: buy the inside, not the house itself. A recent consumer spending survey by ChangeWave Research shows consumers are spending more here and there and feeling considerably better about the economy. Where are they spending? After fun stuff -- travel and restaurants – the winner is consumer durables followed by home renovation.
What looks good? Here are four obvious choices -- plus one you never thought of, I promise.
Home Depot (HD)
When you think of rising home values and small and large home renovation projects, you have to turn to Home Depot.
The company came through the Great Recession leaner and is now doing very well. Growth is beginning to accelerate and in turn that will push earnings higher. Yes the price-to-earnings (P/E) ratio is high but expectations continue to be modest on Wall Street and I think it will beat expectations the next couple of quarters at least.
What happens to Home Depot happens to Lowe's as well. I visited the stores a few days ago and business is very good when you speak to clerks and chat up customers. On a valuation basis Lowe's is cheaper than HD but it is struggling with growth compared to HD. It is probably a good idea to take split position -- one-half HD, one-half LOW.
Consumers are buying appliances. Foreclosed homes need to be repaired, existing homes are being spiffed up, new homes are being equipped with appliances. Whirlpool sales have yet to reflect this shift but tight management has radically boosted profits and the stock is beginning to respond. The big thing for WHR is credit -- credit lines for consumers are loosening up again, as they did for cars a couple of years back. As credit goes, so do appliance sales.
Williams Sonoma (WSM)
This is my favorite store -- and I love retail stores. The retailing behemoth, which operates Pottery Barn, West Elm, Williams Sonoma and other home furnishings chains, just announced blowout growth numbers: sales were up 8.6%, profits up 21% year over year. The company is a clear winner from what I call the New Frugal -- a shift to quality purchases from quality retailers with great brand strength. Its flagship WSM stores are also benefiting from the rapid gains in what I call personalized food, selling food preparation appliances and devices, and food itself, all high-margin products. The stock has been moving up and should continue to do so.
I just mentioned the New Frugal. Part of the New Frugal is cutting out waste around the house -- and one way to do this is to move to LED light bulbs. And that means Cree. CREE is the world leader in LED technology, and licenses this technology, but also makes and sells products. I recently spotted a giant display for LED light bulbs at Home Depot -- under $10 LED bulbs, a critical, new price point. LED bulbs pay for themselves in lower electricity costs and consumers are flocking to them. The company had blowout earnings and the stock raced to $60, it hovered at that level for a while but is rising again despite market turbulence.
Something good about all these names: the charts tell us one way to play them is to sell puts against them to generate instant cash and income. The best stock to do this with, right now, is Cree.
More from Traders Reserve
bUBBA........You are a year or two late....But do agree there is a little more "blood" to squeeze out of the Turnips...
When sold HD it was more then a "doubler" or two/half-bagger in the Low 70s..
Lowes had somewhere north of 85% gain, actually closer to a doubler..
Probably going back in on LOW on a "dip" it was close yesterday..
You guys gotta get more ballz...And tell people sooner.
That didn't include any of their "low" dividend coupons...Didn't matter then.
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.