With strong economic tailwinds in place that will propel revenue growth for many years, the market has turned bullish on these three stocks. With this trend in its early innings, now is a great time to purchase.
New home sales in the U.S. for April were through the roof – posting the best monthly gain in eight years. The sale of new homes was up 16.6% in April, versus the previous month – the fastest pace of growth since January 2008.
And houses are selling for more, with the median home price of a new home in April coming in at $321,000, up 9.7% from the same month last year – this was the highest level on record.
Then there’re existing homes, which were also up in April, posting growth for the second month in a row. Earlier this year, I put out my five boldest predictions for 2016 – one of which was that housing would finally have its year. With all this seemingly good news, housing stocks should be through the roof, but they’re not.
The SPDR S&P Homebuilders ETF (NYSE: XHB) is essentially flat on the year, while the S&P 500 is up 4%. The idea is that the eventual rate hike by the Federal Reserve will put a damper on housing demand – as higher rates lead to lower home loan demand.
However, the jobs market is getting better and there’s plenty of room for housing to grow. Before the housing crisis, from 1999 to 2000, new home sales were averaging over 700,000 a year. Last year, new homes sold was just 500,000.
Many investors might be missing the forest for the trees when it comes to housing stocks. First, the rate of an interest rate increase will be minimal, if at all this year. The credit markets have loosened since the financial crisis, which could finally pull first-time homebuyers into the market. Just last month Wells Fargo (NYSE: WFC) launched a new loan program to help cater to first time homebuyers – offering just a 3% down payment mortgage.
Here are the three ways you can still play the housing market:
Top Housing Play No. 1: Toll Brothers (NYSE: TOL)
The thing about Toll Brothers is that it focuses on luxury homes. This part of the market has become questionable, with the idea being that if the broader market is slowing down, premium players will be first to feel the pain as shoppers trade down to save money. With that, Toll has been one of the worst performers on the year, down 12% in 2016.
But there are a few things that make Toll more enticing than some of the larger homebuilders. First, the luxury home market is a bit more resilient than luxury cars or other high-priced goods. The buyers of premium homes tend to be more financially stable and don’t experience the volatility of the broader economy. Meaning, luxury home shoppers are less price elastic.
Second, competition in the luxury market is less and Toll has a strong presence in the two most populous states in the country – Texas and California. Finally, Toll doesn’t embark on speculative homebuilding and is also looking to tap into the luxury multifamily market with ventures like City Living and Apartment Living.
Now, instead of rehashing more stories of homebuilders and how they can outperform, I’ve dug deeper to find stocks that will supply the things that go inside of new homes – truly underrated housing plays. As well, the next two stocks will also benefit from the strengthening home improvement market.
Top Housing Play No. 2: Masco (NYSE: MAS)
Masco is a maker of all things home – from cabinets and faucets to coatings. It’s been refocusing its business, as it spun off its installation business in mid-2015. Its remaining businesses are less cyclical and have even less competition. It has exposure to new residential construction, but will also see growth from home improvement spending.
One of its major customers is the home improvement retailer Home Depot (NYSE: HD), which is a good thing if you know anything about retail. The strengthening economy and rising wages have helped Masco see an uptick in bigger ticket items and trading up to its best products.
Related: A safe high growth, low volatility self-storage stock with 20 consecutive quarters of FFO growth.
Top Housing Play No. 3: Caesarstone Sdot-Yam (NASDAQ: CSTE)
Caesarstone is a maker of quartz countertops and is featured in stores like IKEA. Shares have fallen 13% this year, and are off more than 50% from their all-time high in July of last year. This comes after a stellar run, but the hard reset seen in its stock might be overdone.
It’s been a perfect storm, with the CEO stepping down unexpectedly in May and hiccups with opening a plant in the U.S. Caesarstone is working through these issues and the eventual U.S. plant will position the company for its next major growth avenue – the U.S. market.
Plus, quartz is taking market share from granite and other counter surfaces, as quartz remains more durable, being more stain, scratch and heat resistant. And, there’s plenty of opportunities for quartz, where quartz countertops make up less than 10% of the global market share.
In the end, housing stocks have been a bit fickle. Despite positive data, many are lagging. My new game plan is to focus on housing stocks that will be resilient in the new housing market. That includes companies that are more insulated from the broader housing market thanks to premium products and exposure to areas such as home improvement.
Investing in stocks with established long-term growth trends in place is a great strategy for some stocks in you portfolio, but they do not replace owning high-quality income stocks that you can buy and hold forever. In the market right now there are a limited amount of options for investors looking to earn a growing income stream from safe investments. And, with the Federal Reserve punishing savers like they are right now, buying a safe CD that pays good interest is no longer an option.
So, what are investors to do with their portfolio’s?
Recently, Tim Plaehn, income expert with Investors Alley, met with the CEO of one of America’s fastest growing specialty banks, and what he told me just blew me away.
This bank didn’t take TARP money or other taxpayer bailouts–or any other bailouts for that matter–back in 2008 or ever.
This bank didn’t get tangled up in risky mortgage-backed securities, credit default swaps, stress tests, FDIC watch lists… you name it.
The CEO told Tim how his bank has been growing by leaps and bounds since even before the financial crash of 2008 and while impressive it’s not what stopped Tim in my tracks.
It’s what he said next.
This specialty bank in America’s heartland is currently paying 7%.
He then shared with Tim exactly how his bank is able to pay so well and how everyday Americans (and Canadians!) can get in on this. Click here to find out.
Tim jotted down all of his notes and put them in this one report for you.
Click here for the full briefing that tells you exactly how and when to get started.