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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

How to Profit from the U.S. Housing Market Recovery

Housing-Market / US Housing Jul 03, 2013 - 02:42 PM GMT

By: Money_Morning


Gary Gately writes: Housing has rebounded in a big way.

Sales of new, single-family homes surged from April to May at the highest rate since July 2008 and by 29% over the previous year, while existing home sales reached the highest level since November 2009.

And home prices posted their biggest annual increase in more than seven years in May and are expected to continue rising, CoreLogic said Tuesday.

How can you profit from the housing market recovery?

Buying the homebuilders' stocks? Sure, but that's almost too easy, and after impressive gains, homebuilder stocks may have peaked for the short term.

But savvy investors trying to figure out how to profit from the housing market recovery can look beyond the homebuilders to other companies benefiting from the recovery.

Among them: construction materials suppliers, home improvement retailers, paint companies and those manufacturing and selling furniture and appliances.

In fact, furniture and related products led all other manufacturing sectors in the latest Institute for Supply Management report for June.

Here are five companies worth a look if you're seeking to profit from the housing market recovery.

Playing the Housing Market Recovery

The Home Depot Inc. (NYSE: HD): The world's biggest home improvement chain has benefited greatly from the housing market recovery and will continue to do so. HD, which was trading at just under $78 on Tuesday, has posted strong growth in earnings per share and revenue as well as net income.

In the first quarter, net income rose 18% while earnings totaled $1.23 billion, or 83 cents a share, up from $1.04 billion, or 68 cents a share, a year earlier. HD said it expects 2013 earnings of $3.52 a share, an increase from previous guidance of $3.37 a share.

Last week, analysts at TheStreet reaffirmed HD's "buy" rating. "The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, notable return on equity, good cash flow from operations and compelling growth in net income," the analysts wrote in a report. Analysts at JPMorgan Chase & Co. reaffirmed an "overweight" rating on HD stock and set an $84 price target.

HD has a market cap of $112.8 billion and a P/E ratio of 24.48. The company pays a dividend of $1.56 for a yield of 2%.

Lowe's Cos. Inc. (NYSE: LOW): The world's second-biggest home improvement retailer (behind Home Depot) reported earnings of 49 cents a share in the first quarter of 2013. That's up about 14% from the previous year but shy of the Zacks consensus estimate of 51 cents a share. The stock was trading Tuesday at about $42.

The company has received a "buy" rating from a handful of analysts. Analysts at TheStreet reissued their buy rating. "The company's strengths can be seen in multiple areas, such as its growth in earnings per share, solid stock price performance, notable return on equity and increase in net income," the Street analysts said.

ISI Group, Deutsche Bank and Goldman Sachs also have reiterated "buy" ratings.

LOW has a market cap of $45.25 billion and a P/E ratio of 24.25. It pays a dividend of 72 cents for a yield of 1.80%.

Bed, Bath & Beyond (NYSE: BBBY): This is another retailer poised to profit from the housing market recovery. BBBY's stores sell products including bed linens, bath items, kitchen textiles and home furnishings.

BBBY, which was trading at about $71.50 Tuesday, reported last week that quarterly earnings came in at 93 cents a share, missing analysts' consensus estimate by 75 cents. But with the housing market recovery, analysts remain upbeat about prospects for BBBY, whose first-quarter revenue rose 17.8% while comparable store sales climbed 3.4 %.

Analysts at Citigroup rated the BBBY stock a "buy" last week and set a price target of $82, while Deutsche Bank analysts, who also rated the stock a "buy," set a $78 target. Nomura analysts reaffirmed an "in-line" rating and set a price target of $80, down from $82.

BBBY has a market cap of $15.41 billion and a P/E rating of 15.44.

Restoration Hardware Holdings Inc. (NYSE: RH): The luxury home furnishings retailer's stock has been on a tear of late. Shares have more than doubled since early April, from $36.07 to about $75 Tuesday. RH has high hopes for capitalizing on the housing market recovery. The stock price is about 10% above the Zacks consensus analyst price target of $68. RH's long-term estimated EPS growth rate is 23.8%.

In June, the company reported net revenues rose 38% to $301.3 million, up from $217.9 million for the first quarter of fiscal 2012, while comparable-store sales climbed 41% compared with an increase of 26% in the first quarter of 2012. EPS increased to 6 cents for the quarter from a loss of 4 cents for the first quarter of fiscal 2012.

Since May, Zacks has upgraded RH from a "hold" to a "buy," then to a "strong buy." Zacks' current consensus for fiscal 2013 earnings is $1.48.

"We are encouraged by the company's strong performance, despite the challenging macroeconomic environment," Zacks said in a report. "The company's focus on strategic initiatives to drive growth and profitability in the luxury home furnishings market is quite encouraging."

RH, which has 70 retail stores, is in discussions to open new ones in more than 30 U.S. markets.

The company, which went public in November, has a market cap of $2.94 billion.

The Sherwin-Williams Co. (NYSE: SHW): The housing recovery is good for the paint business, of course. That helps explain analysts' optimism about SHW, whose stock was trading Tuesday at about $179.

Analysts at TheStreet last week reiterated a "buy" rating and said in a report, "The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, notable return on equity, good cash flow from operations and expanding profit margins."

Analysts at UBS AG initiated coverage with a "buy" rating and set a $215 price target, while analysts at Nomura reiterated a "buy" rating with a target of $200, and analysts at Robert W. Baird upgraded the stock from "neutral" to "outperform" and raised the price target from $180 to $205.

SHW reported in April first-quarter earnings of $1.11 per share, topping the Thomson Reuters estimate by 1 cent, and revenue of $2.17 billion. In the first quarter of last year, SHW had earnings of 95 cents a share. The company has set second-quarter guidance at $2.50 to $2.60 a share and FY 2013 guidance at $7.45 to $7.55 a share.

SHW has a market cap of $18.29 billion and a P/E ratio of 28.95. The company pays a dividend of $2 for a yield of 1.10%.

Check out more on the burgeoning housing recovery and its effect on the economy. See Why U.S. Home Prices Have Been on a Tear and 7 Reasons This Housing Market Recovery is Genuine.

Source :

Money Morning/The Money Map Report

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